The term “income” under the income-tax act is generally defined as a periodical monetary return with some sort of regularity. It may be recurring in nature. It may be broadly defined as the true increase in the amount of wealth which comes to a person during a fixed period of time.
The definition of the term income in section 2(24) of the income tax act 1961, is inclusive and not exhaustive. Therefore, the term income not only includes those things which are included in section 2(24) but also includes such things which the term signifies, according to its general and natural meaning as discussed above.
The broad principles governing the concept of income are as follows:-
1. Regular and definite source – The term “income” connotes a periodical monetary return coming in with some sort of regularity.
2. Different forms of income – Income may be received in case or kind. When income is received in kind, its valuation is to be made according to the rules prescribed in the income tax rules. Usually the valuation can be made on the basis of the market value.
3. Receipt vs. Accrual – Income arises either on receipt or accrual basis. Income may accrue to a taxpayer without its actual receipt. For example, if interest on a term deposit is payable on a quarterly basis and the term deposit was created on the 1st of May, the interest for the last two months of the financial year i.e. February and March would accrue to the taxpayer without its actual receipt.
4. Reimbursement of expenses not treated as income – Reimbursement of expenses is not treated as income. For example, reimbursement of actual travelling expenses to an employee is not an income.
In case of income of salaried employees, all the income received from one’s employer in cash, kind or as a facility is considered as an income. For a businessman, his net profits will be considered as income. Proceeds from investments in the form of interest, dividend and commissions etc. are also considered as income. As per the income tax act, all incomes are divided into 5 heads i.e. Salary, Income from house property, Profits and Gains from business and profession, Income from capital gains, Income from other sources.
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