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What Are The 5 Heads Of Income: Types Of Income In India

What Are The 5 Heads of Income_Kuvera

How many income sources do you have? You get paid from your job, business, investments and more… All of these are your income. So, which income falls under which income head and how does its tax calculation work?

Understanding your income is crucial for effective financial planning. And, don’t worry: it’s simple!

In India, the Income Tax Act categorises income into five distinct heads. 

This classification helps individuals and businesses accurately calculate their tax liabilities and plan their financial strategies accordingly. 

 

 

Let us understand each of these five heads of income elaborately.

 

Here is a detailed table explaining the different heads of income: 

 

Head of IncomeDescriptionInclusionsExclusions
Income from SalaryIncome earned from employmentBasic salary, allowances, bonuses, perquisitesIncome from other sources (e.g., business, capital gains)
Income from House PropertyIncome from owning or renting propertyRental income, notional rentIncome from business or profession
Profits and Gains from Business or ProfessionIncome from business or professional activitiesProfits from business, professional feesSalary income, capital gains
Capital GainsProfits from the sale of capital assetsShort-term capital gains, long-term capital gainsIncome from business or profession
Income from Other SourcesIncome not categorized under other headsInterest income, dividend income, lottery winningsIncome from salary, house property, business or profession, capital gains

 

Here is a description of each of these categories:

 

1. Income from Salary

 

This is the most common source of income for salaried individuals. It encompasses all forms of remuneration received from an employer. These forms include the following: 

 

 

2. Income from House Property

 

Income from house property is a head of income that includes income generated from owning or renting out residential or commercial properties. 

 

Key components of this income head include the following:

 

 

3. Profits and Gains from Business or Profession

 

This head covers income earned from various business activities, including:

 

4. Capital Gains

 

Capital gains arise from the sale or transfer of capital assets. Capital assets include the following:

Capital gains can be further classified as:

 

5. Income from Other Sources

 

This head encompasses various sources of income that do not fall under the other four heads. Some examples of income from other sources include the following:

 

Understanding the Importance of Income Classification

 

Understanding the five heads of income is crucial for several reasons. Let’s learn about the major reasons below:

 

Investing Wisely: The Role of Mutual Funds

 

While this blog post focuses on the five heads of income, it is important to consider how these different income streams can be effectively managed and grown. Investing wisely is a crucial aspect of financial planning, and mutual funds India can play a significant role in achieving investment goals.

 

Mutual funds offer a diversified portfolio of securities, such as stocks, bonds, and other assets. Investors can benefit from professional fund management, diversification by investing in mutual funds. The potential for mutual fund returns that can help grow their wealth over the long term. 

 

Segregated your income into various heads? Time to save taxes with Kuvera.

 

 

Wrapping Up

 

It is essential to know about the five heads of income for efficient tax calculation and financial planning. It is also important to understand these to plan tax saving investments in various investment and other financial instruments. 

 

 

Interested in how we think about the markets?

Read more: Zen And The Art Of Investing

Watch here: Rebalancing for Mutual Fund Investors

Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans of Mutual Funds and Fixed Deposits and start investing today.

 

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