Income Tax Exemptions

According to Chapter III of the Income Tax Act, 1961 there is a provision of exemptions in income tax. There are few
types of specified income on which a person can get exemption. It means that at the time of calculating annual
income, this type of income will not be added. For claiming any of these exemptions, it is necessary to furnish
documents which shows that your income comes under this list. If a person doesn't furnish required documents then
he/ she will not be entitled for this

Income Type Under Section

Agriculture Income 10(1)
Receipts from a Hindu Undivided Family being paid out of 10(2)
family's income or in the case of an impartible estate belonging
to family being paid out of such estate's income
Share of partner in total income of a firm which is assessed 10(2A)
separately as such.
Receipts being in the nature of casual and non-recurring nature 10(3)
not exceeding Rs. 5,000/- (Rs. 2500/- in the case of winnings
from horse races, etc).
Interest on securities and bonds including premium on 10(4)(i)
redemption of bonds by Non Resident as notified by Central
Government.
Interests on amounts in Non-resident (External) Account in any 10(4)(ii)
bank in India being maintained as per FERA, 1973 and rules
thereunder by an individual..
Interest on specified Central Government's Savings Certificates 10(4B)
which were subscribed to, in convertible foreign exchange
remitted from a country outside India as per FERA and rules
thereunder by an individual citizen or a person of Indian
Origin..
Value of Leave Travel Concession or assistance not exceeding 10(5)
the amount actually spent.
Specified remuneration to a foreigner and non-resident 10(5A)
individual for shooting of film in India who comes solely for
such purpose.
Income-tax paid by the employer carrying on scientific 10(5B)
research in respect of the salary income of certain technicians
from abroad commencing from 1.4.93 subject to conditions
stated therin.
Incomes of foreigners as passage money. 10(6)(i)
Remuneration received by an ambassador, diplomats, etc. as 10(6)(ii)
specified.
Remuneration received by employees of foreign companies in 10(6)(vi)
respect of services rendered during stay in India subject to
conditions as specified.
Remuneration received from foreign philanthropic institutions 10(6)(via)
etc. in respect of services rendered in India subject to both the
institutions and the purposes thereof being approved by the
Central Govt.
Income-tax paid by the employer carrying on scientific 10(6)(viia)
research in respect of the salary income of certain technicians
from abroad commencing from 1.4.88 till 31.3.93 subject to
conditions stated therein.
Salaries to non-resident employed on a foreign ship subject to 10(6)(viii)
aggregate stay of not more than 90 days in the previous year.
Salaries to non-resident professors or teachers. 10(6)(ix)
Income of individuals engaged in research work in India under 10(6)(x)
duly approved research schemes.
Remuneration received from foreign government for training in 10(6)(xi)
a government office or undertaking as employee.
Death-cum-retirement gratuity payable to specified members 10(10)(i)
of civil or defence services.
Gratuity not exceeding Rs.3 ½ Lakhs payable under the 10(10)(ii)
Payment of Gratuity Act, 1972
Any other gratuity not exceeding Rs. 2 ½ Lakhs received by 10(10)(iii)
employee on retirement or termination of his services or by
legal heirs on death of employee limited to 15 days salary for
each completed year of service.
Receipt in respect of commutation of pension as per specified 10(10A)
limits.
Leave encashment not exceeding 8 months salary and subject 10(10AA)
to specified conditions & limits.
Compensation paid to employees on account of retrenchment 10(10B)
under Industrial Disputes Act, 1947: Ascertainment of amount
to be either minimum Rs. 50,000 or as per the said Act
whichever is less.
Payments made under Bhopal Gas Leak Disaster Act, 1985. 10(10BB)
Receipt of amount on voluntary retirement upto Rs. 5,00,000 10(10c)
subject to specified scheme and guidelines and necessary
approval.
Payment on a Life Insurance Policy, including bonus thereon 10(10D)
but excluding therefrom amounts received u/s 80DDA(3).
Receipt of Payment from Public Provident Fund or Statutory 10(11)
Provident Fund.
Payment to employee from recognised provident fund in 10(12)
respect of accumulated balance standing to the credit thereof.
Receipt of Payment from Superannuation Fund subject to 10(13)
specified conditions and limits.
Special allowance to employee viz., house rent allowance. 10(13A)
Special benefit to employees within meaning of s.17(2) subject 10(14)
to conditions stated therein.
Receipt of premium on account of Exchange risk from 10(14A)
borrower of foreign currency.
Receipt of interest or premium on redemption etc. on notified 10(15)(i)
securities, bonds etc. such as monthly payment on 15-year
Annuity Certificates subject to specified condition and limits.
Interest on the new Capital Investment Bonds. 10 (15)(iib)
Interest income from notified Relief Bonds w.e.f., assessment 10 (15)(iic)
year 1989-90.
Interest on notified bonds owned by a non-resident etc. and 10 (15)(iid)
bought in foreign exchange subject to certain conditions.
Interest on securities under the Ceylon Monetary Law Act, 10 (15)(iii)
1949
Interest payable to any bank incorporated outside India and 10 (15)(iiia)
approved by RBI.
Receipt of interest from Govt. etc. on moneys lent to them 10 (15)(iv)(a)
from sources outside India.
Receipt of interest from industrial undertaking in India being 10 (15)(iv)(b)
approved foreign financial institutions in respect of moneys
lent to it.
Receipt of interest from industrial undertaking in India in 10 (15)(iv)(c)
respect of moneys lent to it outside India for purchases of raw
materials, plant & machinery, etc. from abroad.
Receipt of interest from specified financial institution in India 10 (15)(uv)(d)
in respect of moneys lent to it from sources outside India.
Receipt of interest from financial institution other than those 10 (15)(iv)(e)
covered by 15(iv)(d) above in respect of moneys lent to it from
sources outside India for the purposes as specified.
Receipt of interest from industrial undertaking in India in 10 (15)(iv)(f)
respect of moneys lent to it in foreign currency from sources
outside India.
Receipt of interest from scheduled bank in respect of deposits 10(15) (iv)(fa)
made in foreign currency subject to same being duly approved
by the RBI.
Receipt of interest from public company having been formed 10 (15)(iv)(g)
and registered in India to provide long-term finances for
construction/purchase of houses in respect of moneys lent to it
in foreign currency from sources outside India.
Receipt of interest from public sector company in respect of 10 (15)(iv)(h)
bonds and debentures as notified.
Receipt of interest from Government in respect of deposits 10 (15)(iv)(i)
made in its specified schemes from funds due on retirement.
Receipt of interest on securities held by Welfare 10 (15)(v)
Commissioner, Bhopal Gas Victims as also on deposits made
with RBI or Public Bank from 1-4-1994 for the benefit of such
victims.
Receipt of payment from an Indian company carrying on 10(15A)
business of operation of aircraft, to acquire an aircraft or
aircraft engine excluding spares etc., on lease from foreign
Govt. or enterprise under an agreement entered into before 1-4-
1997 and being duly approved.
Scholarships granted to meet the cost of education 10(16)
Daily allowances received by MPs, MLAs and MLCs. 10(17)(ii)
Receipt of allowances by MPs under the Member of Parliament 10(17)(ii)
[Constituency Allowance] Rules, 1986.
Receipt of allowances by MLAs under the limit of Rs. 2,000/- 10(17)(iii)
per month
Receipt of any amount in connection with an award, including 10(17A)(i)
award in kind, for literary, scientific or artistic work etc.
instituted by Government etc.
Receipt of amount in connection with a reward including 10 (17A)(ii)
award in kind from Government in respect of public interest
purposes.
Receipt of ex-gratia payments from Government to ex-rulers in 10(18A)
respect of abolition of their privy purses.
Amount calculated as annual value being the notional value in 10(19A)
respect of any one palace to be treated for the purpose as
residence by ex-ruler.
Income of a local authority as specified. 10(20)
Income of a development or housing improvement authority in 10(20A)
a city and/or village.
Income of approved scientific and research association. 10(21)
Income of a university or other educational institution. 10(22)
Income of a hospital or other such institution working 10(22A)
exclusively for philanthropic purposes and not for profit.
Income of news agency having been set up in India for the sole 10(22B)
purpose of collection & distribution of news provided its
income in any way is not distributed to its members.
Income of associations for promotion of sports, etc. as 10(23)
specified.
Any income of associations or institutions for controlling 10(23A)
professions of law, medicine, engineering, accountancy,
architecture, etc., except incomes derived from house property
or for rendering any specified services or interest on/dividends
from its investments.
Income of regiment Fund or Nonpublic fund of armed forces 10(23AA)
established for welfare of past and present members
Income of a fund established for welfare of employees or their 10 (23AAA)
dependents, the employees being members thereof subject to
fulfillment of conditions as to approval and otherwise.
Income of fund set up by LIC from 1-4-1996 in respect of 10 (23AAB)
pension scheme subject to conditions as specified.
Income of a charitable trust or registered society, etc. working 10(23B)
exclusively for development of khadi & village industries and
not for profit as per conditions specified.
Income of Khadi & Village Board, etc.. 10(23BB)
Income received by a statutory public religious or charitable 10 (23BBA)
trust or endowment.
Income of European Economic Community derived in India in 10 (23BBB)
the shape of interest, dividends or capital gains arising out of
investments from its funds under such schemes as notified.
Any income of SAARC Fund having been established under 10 (23BBC)
Colombo Declaration dt. 21-12-91 by Heads of State or
Government of member countries for the purposes of
development of regional projects.
Income on behalf of Prime Minister's National Relief Fund. 10 (23C)(i)
Income on behalf of Prime Minister's Fund (Promotion of Folk 10 (23C)(ii)
Art.)
Income on behalf of Prime Minister's Aid to Students Fund. 10 (23C)(iii)
Income of National Foundation for Communal Harmony. 10 (23C) (iii)(a)
Income of any fund or institution established for charitable 10 (23c)(iv)
cause.
Income of any trust or institution established wholly for public 10 (23c)(v)
religious and/or charitable purposes subject to specified
conditions.
Income of specified Mutual Funds registered and/or set up 10(23D)
under /by SEBI Act, 1992; public-sector bank/financial
institution or RBI fulfilling such conditions as specified.
Income of Exchange Risk Administration Fund having been set 10(23E)
up by public financial institutions either jointly or separately as
per specified conditions.
Income in the shape of dividends or long-term capital gains 10(23F)
derived by a venture capital fund/company from its
investments in the equity of a venture capital undertaking
Income in the shape of dividends, interest or long-term capital 10(23G)
gains derived by a infrastructure capital fund/company from its
investments in the equity or long-term finance of any
infrastructure facility oriented enterprise fulfilling such
conditions as specified.
Income of registered trade-union relating to "income from 10(24)
house property" and "income from other sources" as specified.
income received by trustees of Provident, Superannuation & 10(25)
Gratuity Funds relating to interest on securities and capital
gains resulting from sale or exchange of such securities as
specified.
Income of Employees State Insurance Fund as specified. 10(25A)
Income of member of Scheduled tribes as specified. 10(26)
Income accruing to any person from any source of income in 10(26A)
the district of Ladakh or outside India subject to the person
being resident in the said district in the relevant previous year
and satisfying other conditions as specified.
Income from winnings from lottery, agreement for draw in 10(26AA)
respect of which having been entered into upto 28-2-89
between Sikkim Govt. and organising agents of such lottery
subject to fulfilling of such condition as specified. {to be
omitted from 1-4-1998}
Income of any statutory corporation formed for promoting the 10(26B)
interests of Scheduled Castes or Scheduled tribes, etc., as
specified.
Income of any statutory corporation formed for promoting the 10(26BB)
interests of the members of any minority community.
income of any cooperative society formed for promoting the 10(27)
interests of members of Scheduled Caste & Tribes.
Any amount adjusted or paid relating to Tax Credit 10(28)
Certificates. {To be omitted from 1-4-1998}
Income of an authority from letting of godowns/warehouses for 10(29)
storage, processing or facilitating marketing of goods as
specified.
Receipt by way of subsidy received from Tea Board as 10(30)
specified.
Receipt by way of subsidy received from the concerned Board 10(31)
by an assessee growing or manufacturing rubber, coffee,
cardamom and other notified commodities.
Income relating to minor child if clubbed u/s 64(1A) in the 10(32)
hands of the assessee not exceeding Rs.1,500 in respect of each
minor chid.
Any income by way of dividends (whether interim or 10(33)
otherwise) declared, distributed or paid by a Domestic
Company on or after 1-6-1997 as referred to in section 115-O.
Any profits and gains of newly established industrial 10A
undertakings in free trade zones, electronic hardware/software
technology parks for any five consecutive assessment years
within a block of eight years from the assessment year
corresponding to previous year in which production started
subject to fulfilling all the conditions as specified.
Any profits and gains of newly established 100% export- 10B
oriented units for any five consecutive assessment year within
a block of eight years from the assessment year corresponding
to previous year in which production started subject to
fulfilling all the conditions as specified.
Income of any person from the property held under trust 11
wholly or in part for charitable or religious purposes as
specified in detail and subject to the provisions of sections 60
to 63.
Receipt of any voluntary contributions by a trust/institution 12
created/ established wholly for charitable or religious purposes
excluding the contributions made to it with specific direction to
form part of corpus: Such voluntary contributions be deemed to
be income from property in terms of section 11.
Income of political party chargeable as income from house 13A
property or other sources or by way of voluntary contributions
received by it from any person subject to conditions as
specified.

Income Tax Deductions

In Case of Donations For Charity

Under section 80-G of the Income Tax Act, there are following relief in case of Donations:
• Donation to certain funds, approved education institutions of national
importance, charitable institutions.
• The deduction will be 50% of the amount.

• Deduction may be 100% if donation is given to Prime Minister Relief Funds,

National Foundation for Communal Harmony, Blood Transfusion Council,
The Africa Fund, Earth-quake Relief Fund.

In Case of Physically Handicapped Persons

• A person who is suffering from permanent physical disability or mental

retardation is entitled to deduction upto Rs. 40,000.
• Handicapped must be certified by a physician, surgeon or a psychiatrist,
working in a government hospital.

Under section 80DD and 80U of Income Tax Act, physical disability must be one of the following:

1. Permanent or more than 50% disability in limb

2. Permanent or more than 60% disability in 2 or more limb

3. Permanent loss of voice

4. Permanent blindness

5. Mental Retardation in which mental intelligence is less than 50% of normal

required intelligence
In Case of Treatment of Handicapped Dependents
All the persons who are dependent on physically handicapped person comes under this category. There is provision
of deduction in tax against expenditure on medical treatment, training & rehabilitation of handicapped dependents or
amount paid in an approved scheme of LIC or UTI.

In Case of Repayment of Loan Taken For Higher Education

There is deduction in income tax in respect of repayment of loan taken by a student from a bank or any other financial
institutions for higher education in India or worldwide.

In Case of Contribution To Pension Fund

Under section 80CCC there is a provision of deduction to an individual for any amount paid to keep in force annuity
plan of the LIC for receiving pension from a fund set up by that corporation, as per section 10(23AAB) of Income Tax
Act,1961. The amount received by assessee or his nominee will be taxable. There will be no rebate under section 88
to the persons whose deduction under this section has been approved.

In Case of Amount Paid as House Rent

Under section 80GG of the Income Tax Act there is a provision of deduction in tax on amount paid by a person (not a
salaried person getting housing allowance) for residential accommodation. Deduction in tax will be measured under
following parameters :-
• The excess of actual rent paid over 10% of the total income (excluding long
term capital gain & income, as per section 115A or 115D of Income Tax Act,
1961)

• Deduction will not be allowed to an assessee who owns an residential

accommodation at a place where he is temporarily residing

• Deduction will not be allowed to an assessee who owns an residential

accommodation at any place and has also claimed for deduction in respect
of self occupied property

In Case of Remuneration Received in Foreign Currency by Employer

Under section 80RR an individual resident of India who is an author or writer or photographer or TV/ film cameraman
or TV/ film director or musician or actor or sport person or other such artist whose source of income is foreign income
and brings income to India according to foreign exchange regulation, then he is entitled to get a deduction of amount
equal to 75% of such income as it is brought in India in convertible foreign exchange. This amount will be deducted
from his taxable income within the period 6 months or period allowed by Chief Commissioner of Income Tax
Department. It is necessary to show the documents in favor of your claim.

In Case of Remuneration Received For Services Rendered Outside India

Under section 80RRA of the income tax act, an individual who is getting remuneration in a foreign currency from an
employer for his service in outside of India, will get a deduction of 75% of such income brought into India. This
amount will be deducted from his taxable income within the period of 6 months or period allowed by Chief
Commissioner of Income Tax Department. It is necessary to show the documents in favor of your claim.

In Case of Certain Investment

Under section of 80L of the Income Tax Act, there are few investments which are a matter of deduction in taxable
amount. Here an assessee will get a deduction of amount upto Rs.12,000 - 15,000 from income on certain specified
investments in government securities, UTI mutual funds, bonds and other tax saving schemes. An assessee will be
entitled for deduction from his taxable income if he is getting interest or dividend on certain investment which are as
follows :
• Investment in Securities of central or state government

• Investment in National Saving Schemes

• Investment in Debentures or Bonds of an institution/ authority/ public sector

company/ cooperative society or other such organization notified by central
government.
• Investment in under National Deposit Schemes as notified by Central
Government
• Investment in under other schemes which are notified by central
government like national saving schemes, time deposit schemes, recurring
deposit schemes.
• Investment in under monthly income scheme of the post office

• Investment in units of UTI and Mutual Funds (under Section 10(23D) of the
Income Tax Act)
• Investment in with banking institutions

• Investment in financial institution working for Industrial Development of India

• Investment in a public company limited working for providing long term

financing of housing accommodation
• Investment in such authorities which are working for planning &
development of cities and villages
• Investment in co-operative societies

Heads of Income

Under chapter 4 of Income Tax Act, 1961 (Section 14), income of a person is calculated under various defined heads
of income. The total income is first assessed under heads of income and then it is charged for Income Tax as under
rules of Income Tax Act. According to Section 14 of Income Tax Act, 1961, there are following heads of income under
which total income of a person is calculated:

Heads of Income: Salary

Heads of Income: House Property

Heads of Income: Profit In Business/ Profession

Heads of Income: Capital Gains

Heads of Income: Other Sources

Heads of Income: Salary

What is Salary:
Income under heads of salary is defined as remuneration received by an individual for services rendered by him to
undertake a contract whether it is expressed or implied. According to Income Tax Act there are following conditions
where all such remuneration are chargeable to income tax:

• When due from the former employer or present employer in the previous year, whether paid or not

• When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though
not due or before it becomes due.
• When arrears of salary is paid in the previous year by or on behalf of a former employer or present
employer, if not charged to tax in the period to which it relates.

What Income Comes Under Head of Salary:

Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary:

1. Salary (including advance salary)

2. Wages

3. Fees

4. Commissions

5. Pensions

6. Annuity

7. Perquisite

8. Gratuity

9. Annual Bonus

10. Income From Provident Fund

11. Leave Encashment

12. Allowance

13. Awards
What is Leave Encashment:
Leave encashment is the salary received by an individual for leave period. It is a chargeable income whether he is a
government employee or not. Under section 10(10AA) (i) there is also a provision of exemption in case of leave
encashment depending upon whether he is a government employee or other employees.

What is Annuity:
It is an annual income received by the employee from his employer. It may be paid by the employer as voluntarily or
on account of contractual agreement. It is not taxable until the right to receive the same arises. Under section 56,
Income Tax Act, 1961 other annuities come under a will or granted by a life insurance company or accruing as a
result of contract which comes as income under from other sources.

What is Gratuity:
It is salary received by an individual paid by the employee at the time of his retirement or by his legal heir in the case
of death of the employee.

What is Allowance:
It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the
Income Tax Act, 1961 these allowance are taxable excluding few condition where they are entitled of deduction/
exemptions.

Under Income Tax Act following types of allowance are defined

House Rent Allowance:

Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by
his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his
own house or house for which he is not paying rent. There are following types of amount which are exempted from
tax:

• Actual house rent paid by that individual

• Rent paid for the accommodation over 10% of the salary

• 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary in it is placed in
any other city

Entertainment Allowance:
It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it
is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes
entertainment allowance. Deduction in tax against this allowance can be divided into two parts :

In case of Government employee entitled to minimum deduction of

• Entertainment allowance received

• 20% of basic salary excluding any other allowance

• Rs. 5000

In case of other employee entitled to minimum deduction of

• (a) Entertainment allowance received
 • 20% of basic salary excluding any other allowance

• Rs. 7500

• Entertainment allowance received during 1954-1955

Other Special Allowances

• Children Education Allowance

• Tribal Area Allowance

• Hostel Expenditure Allowance

• Remote Area Allowance

• Compensatory Field Area Allowance

• Counter Insurgency Allowance

• Border Area Allowance

• Hilly Area Allowance

Allowances for there is a provision of exempt in income tax are:

• Allowance given to a citizen of India, who is a government employee, for rendering services outside India

• Allowances given to Judges of High Courts

• Allowance given Judges of Supreme Court

• Allowances received by an employee of UNO

What is Perquisite
Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:

• Amount paid for the rent-free accommodation provided to the assessee by his employer

• Any concession in the matter of rent respecting any accommodation provided to the assessee by his
employer
• Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

1. By a company to an employee, who is a director thereof

2. By a company to an employee being a person who has a substantial interest in the company

3. By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000
excluding the value of non monetary benefits or amenities
4. Any sum paid by the employer in respect of any obligation which, but for such payment, would have
been payable by the assessee
5. Any sum payable by the employer whether directly or through a fund, other than a recognised
provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for
an annuity

There are following perquisites which are tax free:

• Medical facility
 • Medical reimbursement

• Refreshments

• Subsidised Lunch/ Dinner provided by employer

• Facilities For Recreation

• Telephone Bills

• Products at concessional rate to employee sold by his/ her employer

• Insurance premium paid by employer

• Loans to employees by given by employer

• Transportation

• Training

• House without rent

• Residence Facility to member of Parliament, judges of High Court/ Supreme Court

• Conveyance to member of Parliament, judges of High Court/ Supreme Court

• Contribution of employers to employee's pension, annuity schemes and group insurance

Heads of Income: House Property

What Is Heads of House Property

According to Chapter 4, Section 22 - 27 of Income Tax Act, 1961 there is a provision of income under head of house
property. In every section from 22-27 there are detail specification of house property income. It is defined as income
earned by a person through his house or land.

What Income Comes Under Head of House Property:

Annual value of building or land owned by assessee. There is a charge on the potential of property to generate
income not on the rent received. But if property is used for making profit in business then it will be taxable not under
this head but will be taxable under head of profit in business/ profession.

How to calculate annual value of property:

According to annual value, house property is calculated as

1. Annual value of a house is zero if property is in the occupation of the owner for his residence for the whole
year & if no other benefit is availed by owner from his property. There will be no deductions as given under
section 24 except deduction interest on borrowed capital
2. If the owner lets out the house or a part thereof for any period of time during the previous year the annual
value of the property or part has to be calculated for the whole year and the proportionate annual value of
 the period for which the house or any part thereof was in the occupation of the owner for his own residence
shall be deducted from the gross annual value. The assessee in such cases cannot claim deduction under
section 24 in excess of the annual value so determined
3. The assessee occupies more than one house for his residence, the above exemption is applicable only to
one such house at the option of the assessee. The annual value of the other house or houses shall be
computed as if the house or houses are let
4. In case where the assessee has only one residential house but it cannot be occupied by the owner by
reason of that owing to his employment, business or profession carried out on at any other place, he has to
reside at that other place in a building not belonging to him, the annual value of such house shall be taken to
be nil if the house is not actually let and no other benefit is derived by the owner from such house. The
assessee cannot claim any deduction in such case as allowable under section 24 of the Act except for
interest on borrowed capital subject to a maximum of Rs. 15,000/-

Heads of Income: Profit in Business/ Profession

According to Income Tax Act, 1961 income under this head is defined as the income earned by assessee as a profit
or gain in his business or profession. Income under this head must follow these conditions:

• There must be a business/ profession

• Business/ profession is being carried by assessee

• Business/ profession have been carried out by assessee in assessment year for which income tax is filling

What Income Comes Under Head of Profit in Business:

• Profits and gains of assessee from any business or profession during assessment year

• Any payment or compensation due or received by a person for his services to organization as a part of his
business
• Making profit in trade Income of professional or organization against services provided by that professional/
organization
• Profits on sale of a license granted under the Imports (Control) Order, 1955, (EXIM control Act, 1947)

• Cash received or due by any person against exports under government schemes

• Any benefit whether it is not in cash coming from business/ profession

• Any profit, salary, bonus or commission received by company partners

What is Capital Gain:
According to Income Tax Act,1961 heads of capital gain is defined as gains derived on transfer of capital asset.
Capital Gain is the profit or gain of an assessee coming from the transfer of a capital asset effected during the
previous year or assessment year. "Capital Asset" and transfer are predefined in income tax act.

What is Capital Asset:

Under section 2(14) of the Income Tax Act,1961 Capital Asset is defined as property of any kind held by assesse
including property held for his business or profession.

It includes all type real property as well as all rights in property. It is also defined as gains on transfer of assets in
which there in no cost of acquisition like:

• Goodwill of business generated by assessee

• Tenacy rights

• Stage carriage permits

• Loom hours

• Right to manufacture

• Processing & production of any article or things

Assets Which Don't Come Under Heads of Capital Assets

According to Income Tax Act,1961 there are few assets which don't form a part of Capital Assets, which are as
follows:

• Stock of goods and raw materials used by assessee for his business or profession

• Those property which are movable like wearing apparel, furniture, automobile, phone, household goods etc.
Held by assessee. But Jewelry which is also an movable assets comes under heads of Capital Assets
• Agricultural property in India. But agriculture land coming under municipal limits (in area having population
ore than 10,000) comes under Capital Assets. Agriculture lands within 8 Km from municipal limit also comes
under Capital Assets if it is notified by the central government of India
• Few Gold Bonds issued by government

• Few special bonds issued by central government like Special Bearer Bonds, 1991

Transfer of Capital Assets

Under Section 2(47) of The Income Tax Act,1961 transfer of capital assets is defined as:

• Sale, exchange and relinquishment of assets

• Extinguishment of any rights in capital assets

• Acquisition of capital assets or rights

• Conversion of capital asset by its owner as stock in trade of his business, it may also be a term of transfer

• Transfer of immovable property under Section 53A of Transfer of Property Act, 1882
 • Any transaction by which an assessee become enable to act as a member of cooperative society

• Any transaction by which an assessee acquire shares in cooperative society

Heads of Income: Other Sources

Every type of income comes under a specified heads. But there are few incomes, which don't come under any of
following heads:
• Salary

• House Property

• Profit In Business/ Profession

• Capital Gains

So under Section 56(2) of Income Tax Act,1962 all such income comes in this heads of income. There are following
incomes which are taxed under this heads

• Income coming as a dividend paid by a company to an assessee

• Income coming from winning in lottery, crossword puzzles, races, card

games, gambling or other such sports

• Income coming as an amount received by assessee from his employer as a

fund for welfare of employee
• Income as an interest on securities

• Income coming by letting on hire machinery, plant, furniture, building or

other goods Income coming from insurance policy