What are the 5 Heads of Revenue Tax

When you must do your taxes on the finish of the yr, you must classify the revenue you have got earned within the monetary yr into 5 classes. These classes are listed in Part 14 of the Revenue Tax Act of 1961. To precisely calculate your tax obligations, all of your revenue should be divided between these 5 heads of revenue, that are:

  • Revenue from wage
  • Revenue from home property
  • Revenue from earnings and good points from enterprise or occupation
  • Revenue from capital good points
  • Revenue from different sources

Since folks have totally different sources of revenue, it may be complicated typically to inform which of the earnings in a specific monetary yr will fall beneath which class. To appropriately classify your earnings, you should have a transparent understanding of every of the 5 revenue tax heads, and on this weblog, we’ll do exactly that! We’ll break down every head individually to make issues simpler for you and show you how to make knowledgeable selections about your funds to be able to interact in efficient tax planning.

Revenue from wage

The primary head is the revenue from wage. Nearly all of us derive our main revenue from salaries. If an employer provides you, an worker, financial compensation, your revenue is assessed beneath this head. Our wage is the fruit of our labour, however how is it categorised so far as revenue tax goes? Properly, there are a number of elements inside this head, corresponding to

  • Your primary wages
  • Pension 
  • Perquisites
  • Gratuity
  • Fee
  • Any bonuses corresponding to an annual bonus
  • Depart encashment
  • Advance wage, and others. 

When all such elements are added, you get your gross wage, and this gross quantity is what’s charged beneath the revenue from the wage head.

A few of the elements of your wage are exempt from taxes beneath the Revenue Tax Act, corresponding to

  • Home Hire Allowance, which an worker will get in a normal package deal and is used to pay the home lease. Exemptions for HRA are listed beneath Part 10 of the Revenue Tax Act.
  • Conveyance Allowance, which an worker receives for journey between the workplace and residential. This exemption can be listed in Part 10 of the Revenue Tax Act, and one can declare a most exemption of Rs. 1,600 monthly.
  • Depart Journey Allowance, which is the compensation an worker receives for private journey, corresponding to for holidays. Underneath Part 10(5) one can declare LTA tax advantages for 2 journeys in 4 years.
  • Medical allowance, which is acquired by workers to cowl their medical bills. Underneath Part 17 of the Revenue Tax Act, one can declare as much as Rs. 15,000 as tax exemption per yr.

If you’re an investor who’s in search of a tax-saving funding possibility, you need to contemplate Fairness-Linked Financial savings Scheme mutual funds. Understanding the ELSS mutual fund which means can assist you optimise your tax liabilities. These funds have doubtlessly excessive returns as they spend money on equities or equity-related devices, and beneath Part 80C in addition they present tax advantages. This twin profit, coupled with the truth that ELSS has the shortest lock-in interval in comparison with different tax saving choices at three years is why ELSS is a well-liked decide amongst folks trying to minimise their tax liabilities.

Revenue from home property

Revenue from home property is the following head of revenue tax. This head is printed in Part 22 to Part 27 of the Revenue Tax Act and gives a complete view of the earnings related to a property. Revenue from home property goes past what you earn in lease – it’s a calculated quantity that features what you can have earned.

The first supply of revenue on this class is the rental revenue acquired by the property proprietor. This contains the lease paid by tenants for the usage of the property. In circumstances the place a property just isn’t set free however has the potential to generate rental revenue, or if all of the properties are self-occupied, the tax nonetheless must be paid on the worth of lease the taxpayer would have acquired in case that they had rented the property. 

There are a couple of circumstances for revenue to be taxable beneath this head:

  • The home property must be owned by the taxpayer.
  • The home property must be a constructing, home, or land appurtenant.
  • The home property can’t be used for every other goal aside from residency. 

Many deductions are allowed beneath this head. Property homeowners can deduct the municipal taxes paid throughout the fiscal yr. An ordinary deduction is allowed to account for numerous bills associated to the upkeep and maintenance of the property. House owners are additionally allowed deductions on fee of house mortgage pursuits.

Revenue from earnings and good points from enterprise or occupation

The third head of revenue is revenue from earnings and good points from enterprise or occupation. When you make your cash by way of enterprise or are self-employed, you must classify your revenue beneath this head. Enterprise means any type of commerce or manufacturing, and occupation means you have got acquired your abilities in a particular area after learning and passing associated examinations. Because the tax is levied on good points, you must subtract your bills out of your complete income to get a gross quantity. This gross quantity is what’s taxed. 

Some guidelines beneath Part 28 of the Revenue Tax Act need to be glad for revenue to be charged beneath this head:

  • The enterprise or occupation that you simply declare must be official. 
  • Because the taxpayer, you must perform the operations of the enterprise or occupation.
  • For almost all of the earlier yr, the taxpayer must be actively controlling the enterprise or occupation.
  • The tax is charged on the good points made by the enterprise or occupation when it was working within the earlier yr.
  • The taxpayer has to checklist all different companies or every other professions that they’re finishing up. 

Underneath this head, among the sorts of revenue that may be charged embrace:

  • All revenue an organisation makes on revenue.
  • Good points you obtain attributable to partnership with one other agency.
  • Any advantages that your enterprise receives.
  • Revenue made by the sale of sure licences. 
  • Bonuses and incentives acquired.
  • Sale of imports.
  • Commissions.

Keep in mind that your enterprise or occupation doesn’t need to be operational for the whole thing of the earlier yr to be charged beneath the top. If it was energetic at any time within the earlier yr, tax may be charged.

Revenue from capital good points

If you spend money on a capital asset and make a revenue upon promoting it, that revenue turns into taxable and it’s labeled beneath the top of revenue from capital good points. A few of the capital belongings embrace shares, actual property, gold, bonds, and mutual funds

There are two varieties of good points one could make on capital belongings – short-term capital good points and long-term capital good points. Brief-term capital good points are good points you make if you promote your capital belongings inside three years or 36 months. Relying on the asset, a most of 15% tax may be utilized to those good points. 

Then again, long-term capital good points are made after you promote an asset you’ve invested in for over three years. The speed of tax on these good points is utilized as much as a most of 20%. Because of this if you’re investing, it’s essential to think about the holding interval of the asset, because it has tax implications later.

Underneath Part 54 and Part 54F of the Revenue Tax Act, there are numerous exemptions accessible for capital good points.

Revenue from different sources

The fifth and closing head of revenue is a catch-all class. It contains earnings from numerous sources that aren’t coated beneath the earlier 4 heads. This head falls beneath Part 56 (2) of the Revenue Tax Act and contains the next sources of revenue:

  • Lotteries,
  • Curiosity revenue on financial savings accounts,
  • Playing rewards corresponding to card video games,
  • Sports activities rewards,
  • Present playing cards,
  • Royalties,
  • Any quantity exceeding Rs. 50,000 acquired from somebody who just isn’t your relative, and plenty of different sources.

Given the complexity and variety of revenue sources falling beneath this class,  it might be sensible to seek the advice of a tax advisor to minimise your liabilities. An skilled tax advisor can information you on correct classification and show you how to be sure to don’t miss out on potential deductions and advantages.


Albert Einstein as soon as mentioned, “The toughest factor on the earth to know is revenue tax.” After all, he was exaggerating and mentioned so in jest, however there may be some reality behind his assertion. Revenue tax legal guidelines may be fairly complicated however with the precise information and method, tax can turn out to be a manageable side of our lives. You now know all in regards to the totally different heads of revenue so you’ll be able to simply classify your revenue when submitting in your tax.

Bear in mind although that precisely calculating tax is a wholly totally different factor, so when you have any confusion, you’ll be able to search the assistance of an revenue tax planner. Not solely can an revenue tax planner show you how to keep away from pointless penalties, however may allow you to benefit from the varied exemptions, deductions, and advantages and information you thru the ever-changing panorama of tax legal guidelines.


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