HEADS OF INCOME UNDER INCOME TAX ACT, 1961
What are heads of income under income tax act, 1961?
There are five heads of income under income tax act, 1961 viz.,
1. Income from salaries
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources
SIGNIFICANCE OF HEADS OF INCOME [sec.14]:
v Under the income tax act,1961 income chargeable under a separate head cannot be chargeable under any other head.
v This act has self contained provisions.
v If any income is charged under a wrong head the tax payer will loss the benefit of the deduction under that relevant head of income.
RELEVANCE OF METHOD OF ACCOUNTING FOR HEADS OF INCOME:
Ø Salaries are taxable on due basis or receipt basis whichever is earlier and the method of accounting is irrelevant.
Ø House property income is taxable only on accrual business and the method of accounting is not relevant.
Ø For Income from business or profession the assessee can follow either cash system or mercantile system whichever is regularly employed by the assessee.
Ø Income from capital gains can be taxable during the previous year in which the capital asset is transferred and the method of accounting is not relevant .
Ø Income from other sources shall be accounted either on cash system or mercantile system regularly employed by the assessee.