Income Tax Provisions for Various Income Types in India

Income tax in India classifies individual income into five major heads for tax assessment: Salary, Income from Business or Profession, Capital Gains, Income from House Property, and Income from Other Sources. Each type has specific provisions under the Income Tax Act, 1961, governing the computation, tax rates, and exemptions applicable. Understanding these provisions is essential for proper tax compliance.

Income from Salary

Salary income includes wages, bonuses, commissions, allowances, perquisites, and other remuneration from employment. As per Section 17(1) of the Income Tax Act, salary is taxable on an accrual or receipt basis, whichever is earlier. It covers payments received in cash, kind, or as facilities.

• Tax is imposed on salary for services rendered in India, regardless of the employee’s residency status.
• Salaried individuals benefit from new tax slabs that start with no tax up to ₹3 lakh and progressive rates up to 30% for income above ₹15 lakh for AY 2025-26.
• Salary tax calculation involves gross salary, allowable deductions, and net taxable income assessment.
• Employers are mandated to deduct tax at source (TDS) from salary payments.
• A standard deduction of ₹75,000 is available under the new tax regimes and of ₹50,000 under the old tax regime for salaried taxpayers

Income from Business or Profession

Income earned from running a business or carrying out a profession is taxable under this head. Taxable income is the net profit after deducting business-related expenses as per proper accounting books.

• Profits from sale of goods, services, freelancing income, and professional fees fall here.
• Presumptive taxation schemes are available under sections 44AD (business) and 44ADA (profession) for small taxpayers with turnover limits, simplifying tax computation by taxing a fixed percentage of turnover.
• Income tax slabs for business/profession income are similar to individual slabs, with applicable health and education cess added.
• Section 28 includes additional profits, compensation, or salaries related to business activities.
• Taxpayers can choose between the old and new tax regimes; however, switching between regimes for business income involves filing Form 10-IEA.

Capital Gains

Capital gains tax applies to profits from selling or transferring capital assets like property, stocks, bonds, or mutual funds.

• Gains are classified as Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) based on holding periods (e.g., more than 24 or 36 months for property).
• LTCG tax rates are typically lower (e.g., 12.5% for listed shares and equity funds) while STCG may be taxed at higher rates or slab rates.
• Exemptions and thresholds exist, such as ₹1.25 lakh exemption on LTCG from equity shares.
• Budget 2024 introduced revised tax rates that take indexation benefits and asset types into consideration.

Income from House Property

Income from house property includes rental income from letting out property or deemed rental value.

• Taxable income is calculated as the annual value (rent received or expected) minus municipal taxes and allowable deductions, including up to ₹2 lakh deduction on home loan interest for self-occupied property.
• Self-occupied property income is generally nil except for interest on home loans.
• Income is taxable only if the property is not used for business purposes.
• Section 24 provides detailed rules on deduction eligibility and rental income computation.

Income from Other Sources

This head covers all residual income not included under the above categories.

• It includes interest on savings accounts and fixed deposits, dividends, lottery winnings, gifts exceeding ₹50,000, and rental income not qualifying as house property income.
• Taxation follows slab rates applicable to the individual.
• Proper disclosure and tax payment are required to avoid penalties.
• This category acts as a catch-all for miscellaneous incomes.

Conclusion

Understanding the distinct provisions and applicable tax rates for each income type helps taxpayers in complying with tax laws effectively and planning their finances efficiently. For personalized advice, consulting a tax professional or using official income tax department resources is recommended.

This article consolidates the latest Indian income tax regulations as updated for FY 2024-25/AY 2025-26 to aid salaried individuals, business owners, professionals, and investors in comprehending tax liabilities on various income sources.