What is Income and Different Sources of Income?

Money isn’t everything; however, it is a critical component in the life of an individual. Money helps us reach our life’s ambitions and supports – the things we care about most passionately – family, education, health care, charity, adventure, and pleasure — in addition to meeting our fundamental requirements. It enables us to get some of life’s intangibles, such as freedom or independence, the capacity to maximize our abilities and talents, the ability to choose our own path in life, and financial stability. The money an individual receives in reward for his or her labour, services, or investments or the money a corporation obtains through selling its goods and services is termed as Income. This article aims to provide the solution to the question “What is Income and it’s Different Sources of Income?”

What is Income and its Different Sources of Income?

Let us firsts, understand about Income, before we move on to sources of income. In layman’s language Income is the earnings in form of salary by the individual or the money gained by way of profit by any business entity, one person companies, private companies, and so on. Let us quickly understand the real gist of Income.

Meaning of Income

The money which a person receives (individuals or businesses) on a daily, weekly, monthly, or annual basis in form of salary for rendering of services or in form of profits made out of any business activity is the income of the individual. Allowances and perquisites are of utmost value in both monetary and non-monetary terms. Unless specifically exempted, all income is subject to income tax.

Definition of Income as per Income Tax Act, 1961

Income Tax Act, 1961 defines the Income under section 2(24). According to this section income includes the following heads:

• Salary 
• Profits and Gains from Business and Profession 
• Dividends 
• Voluntary contributions made by trusts, charitable institutions established wholly or partly for charitable or religious purposes 
• Perquisites 
• Special or Other Allowances 
• Any sum paid by the company to the assessee in the form of interest 
• Capital Gains 
• Income from Other Sources

Characteristics of Income

The following are the characteristics of Income:

• The person can acquire or generate Income on a daily, weekly, monthly, or yearly basis.
• The government can incorporate tax at Income’s receipt or accrual basis. 
• The Income tax law does not differentiate between legal and illegal income.
• Individual can receive Income on a temporary or permanent basis.
• Moreover, the Income received in a lump sum or in instalments will be subject to tax.
• Income, as defined by the Income Tax Act, 1961 comprises revenue and capital gains, as well as losses.
• Gifts of more than Rs. 50000 received throughout the financial year are considered income for individuals and HUFs.

Sources of Income

A person’s income might come from a variety of sources, which can be calculated under numerous income categories. The sources of income may be divided into five categories: –

• Salary income:Salary income is the payment that an individual receives for providing services under any contracts that he enters into. The contract should fall within the category of employment.

• House Property Rental Income: A house property may be anything that is belonging to the land; it might be your home, your office, a business, or even a structure. The Income Tax Department makes no distinction between your commercial establishment and your primary residence while verifying your income limits. Under this heading, all properties are subject to tax. For the purposes of income tax, an owner is a legal owner who has the ability to exercise all of the owner’s rights, which should not be exercised on someone else’s behalf.

• Income from Business and profession profits and gains: This income is the amount displayed on the taxpayer’s profit and loss account after subtracting the amount shown on the profit and loss account.This revenue includes both the amount, regardless of whether it is a loss or a profit. ‘Profit and gains’ refers to revenue that is in the positive, whereas ‘loss’ refers to income that is in the negative. All income, whether legal or criminal, is subject to tax under this heading. The money made by the businessperson in the preceding year is taxed. A business entity or individual must file their respective Income Tax Return on or before July 31st of the assessment year.

• Earning from Capital Gain: Any profit or gain by transferring capital assets kept for investment is subject to taxation under the heading of ‘Income from Capital Gain.’ The individual can use any of the Short-Term Capital Assets and Long-Term Capital Assets to generate the gain. You can only earn Capital Gain if the kind of asset transferred is a Capital Asset. In other words, if the asset is not a capital asset, it will not be subject to Capital Gain. Some instances include selling a house/flat, selling stocks, and so forth.

• Other Sources : Income that does not fit under any of the other categories will be classified as ‘Income from Other Sources.’ Examples include gifts, interest on savings or FDs, dividends, and so forth.

Takeaway

Earning more income may give you more options, but it does not guarantee that you will make the proper or wise decisions, so you must still grasp the ideas of saving, spending, investing, and sharing. You must earn more if you wish to spend more, save more, invest more, or give more to others. Unfortunately, with easy access to debt, individuals have lost the value of earning a living.