Income is a broad term referring to any monetary return. The income tax department taxes all types of income, even one-time incomes. For example, a salaried person's income includes all earnings from their employer. For a business person, their business profits constitute income. Income can also come from investments.
The Income Tax Act has classified income into five categories:
- 1- Salary Income: This includes all earnings from an employer, such as wages, allowances, bonuses, and retirement benefits. This income is taxable after considering any exemptions.
- 2- House Property Income: Taxes apply to any owned residential or commercial property. If you have a home loan, the interest is considered as negative income, providing a tax benefit.
- 3- Business or Profession Income: This is the income earned from your profession or business. It's calculated as the difference between the income received and expenses incurred.
- 4- Capital Gains Income: Profit or gain arising from the transfer of capital assets like houses or jewellery are taxed under this head. Short-term and long-term gains are included.
- 5- Other Sources Income: Any income that doesn't fit into the previous four categories falls here, including dividend income and interest from bank deposits.