For all eligible taxpayers for FY2024-25, it is crucial to note that income tax is not just levied on salaries but on five identified sources of income, also known as five heads of income tax.
Section 14 of the Income Tax Act, 1961, states that different sources of income must be grouped for tax purposes. The law divides all types of income into five specific categories.
Aimed towards making tax calculation easier and more structured, taxpayers must carry out this step before calculating your income tax liability.
It is also crucial to note that the ITR filing deadline for this year stands at July 31. Failing to pertain to the mentioned deadline would result in interest penalties.
Five heads of income tax:
1. Income through earned salary: Taxable salary comprises basic salary, all allowances, perquisites, and bonuses, among others, which fall under the taxable bracket.
Taxpayers who earning a monthly salary as their sole income should file their income tax return through the ITR-1 form.
2. Rental income from house property: If a citizen owns a property that has been rented out, or sublet, the earned rent is taxable.
{{/usCountry}}2. Rental income from house property: If a citizen owns a property that has been rented out, or sublet, the earned rent is taxable.
{{/usCountry}}Taxpayers who are eligible under this income stream can file their ITR through the ITR-1 form.
3. Income through capital gains: Short and long term capital gains and those that accrue on the sale of shares, mutual funds and real estate, are an income tax eligible stream.
Taxpayers with capital gains lower than ₹1.25 lakh should use ITR-1 and those with higher gains, can use ITR-2, for filing their income tax returns.
4. Income from business or profession: Self-employed individuals, freelancers, small agency owners and those with business incomes or entrepreneurs, fall under this slab.
Taxpayers under this category of income stream should refer to ITR-4, ITR-5 or ITR-6 numbered forms, on the basis of their respective income categories.
5. Income through other sources: Citizens benefitting from interest income from fixed deposits or bonds, share dividends, gifts, rewards from game shows, lucky draws, lottery prizes etc. that exceed ₹50,000, belong under the slab of ‘other sources’.