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Income Under the 5 Heads

Sudhir Yadav

Income From Five Heads are as Follows

1. Income from salary2. Income from house property3. Income from profit or gain from business or

profession.4. Income from capital gain.5. Income from other sources.

Complete Process of Computation of Taxable Income & Tax

1) Determine the residential status of the assesse2) Determine the incidence of tax3) Classify income after considering specific

exemption into respective head.4) Aggregate the income.5) Apply clubing Provision.6) Setoff/Carry forward losses (if any)7) Balance shall be gross total income.

Cont

8. Allow deduction 80C to 80U chpt VI A.

9. Balance shall be total income.

10. Determine the tax payable, applying the rates applicable.

11. Deduct rebate/relief of tax.

12. Add surcharge.

13. Add educational cess.

14. Balance is tax payable.

15. File return of income before the due date of filing.

Income From Salary

Salaries U/S 17(1) include following:-1. Wages2. Pension3. Gratuity4. Any fees, Commission, Perquisite,Profit in

lieu of salary 5. Any advance salary etc

List of Allowance exempted from tax1. Conveyance allowance .2. Children education allowance .3. Any allowance granted to an employee to meet the hostel

expenditure of his child .4. Transport allowance .5. House rent allowance .6. Provident Fund . 7. Gratuity .8. Leave travel concession .9. Compensation received at the time of voluntary retirement .10. Encashment of earned leave at the time of retirement .11. Computation of pension .12. Entertainment allowance .

Statement of total income from salary Particular Rs Rs Basic salary XXX Dearness Allowances (DA) XXX House Rent Allowances xxx

Less :- Exemptions Under sec10 (13 A) xxx XXX Eduacation Allowances XXX

Less :- Exemptions Under sec10 (14) xxx XXX Conveyance Allowance xxx

Less :- Exemption Under sec 10(14) xxx XXX Bonus XXX Gratuity xxx

Less:- Exemption Under sec 10(10) xxx XXX Perquisities (Taxable) XXX Entertainment Allowances XXX Gross Salary XXX

Less :- Deductions U/S 16 xxx U/S 16(2) xxx U/S 16(3) xxx XXX Taxable Income from Salary XXX

INCOME FROM HOUSE PROPERTY

Sec 22 of Income Tax Act 1961Income from houses, buildings, bungalows Tax is based on Annual value.

POINTS TO BE REMEMBERED

Assessee should be the Owner of the PropertyShould be not be used for Own Business or

ProfessionIn Case of Dispute Regarding TitleProperty Let Out along with other AssetsIn case of sub-Letting

ANNUAL VALUE (SEC 23)

EXPECTED RENT

FAIR RENT

The rent which a similar property will fetch at the same or nearby similar locality.

Municipal Rent Value (MRV) X X X

Fair Rental Value (FRV) X X X

Whichever is higher (ER) X X X ( If no SR)

Standard Rent (SR) ( If available) X X X

Whichever is less (ER) X X X

MUNICIPAL RENTThe value fixed by the municipal or local authority

STANDARD RENTRent fixed by the Rent Control ActMax rent an owner can claim from his tenant as

rent

ACTUAL RENT Rent for which property has been let out

CALCULATION OF GAV

Particular House 1 House 2

MRV 1,05,000 1,05,000

FRV 1,07,000 1,07,000

Whichever is higher 1,07,000 1,07,000

SR 1,35,000 1,35,000

ER (Whichever is Less) 1,07,000 1,07,000

AR 1,12,000 98,000

GAV 1,12,000 1,07,000

COMPUTION OF HOUSE PROPERTY INCOME

Particulars amount amount

Gross Annual Value xxxLess: Municipal tax -Paid by owner xxx

Net Annual Value xxx Deduction U/S 24 1. Standard deduction -30% of NAV xxx 2. Int. on borrowed capital- Paid or due xxx xxx

Income from House Property xxx

Income from Profit/Gain from Business/Profession

Chargeability Under sec 281. Profit/Gain from any business/Profession2. Profit on sale of import entitlement license3. Duty drawback4. Value of benefit arising from any business/profession5. Income derived by trade/profession6. Income from speculative transaction7. Income received under keyman insurance policy8. Any interest,salary, Bonus, commision or

remuneration received by partner of a firm.

Case business income is not taxable u/s 28

• Rental business• Dividend on share • Speculative transactions

excluded :-Hedging contracts and derivative transaction.

How to compute PGBP

U/S 30 Deductions allowedRent taken Repairs not in a nature of capexInsurance premiumU/S 31 Deductions allowed w.r.t plant & machinery.Sec 32 Depreciation

Income from Capital Gain

Chargeability U/S 45 (1)Capital Gain tax liability arises when following

conditions get satisfied:-• There should be a Capital Asset• There should be a Transfer• Transfer should be in previous year• Result of transfer should be profit or gain• Such Profit/Gain is not exempt.

Exemption for Capital Assets

• Any Stock-in-Trade.• Movable Property (excludes jewellery archeological,

Drawings, Paintings, Sculpture).• Agricultural Rural Land.• 65% Gold Bond -1977 / 7% Gold Bonds-1980/

National Defense Gold Bond issued by Central Government.

• Special Bearer Bonds 1991.• Gold Deposit Bond issued under Gold deposit scheme

1999.

Types of Capital Assets

There are two types of Capital Assets I. Short Term Capital AssetII. Long Term Capital Asset

Income from Other Sources

Chargeability U/S 56(2)It includes the following• Dividend.• Windfall from lotteries crossword gambling.• Income by way of interest on securities.• Income from Royalty• Director fees• Income from investment

Thank You!!!