Check the definition of Income as per Sec 2(24) of the Income Tax Act 1961. Here we’ve provided the details about What is Income? and What is Not Income? under the Income Tax Act in India. All Receipts are not income and all payments are not expenses. Have a look at what the Income Tax Act defined the term Income.
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What is Income?
Definition of Income: The term “Income” is defined in section 2(24) of the Income Tax Act, 1961. However, since “Income” has a very broad scope, it is not possible to attribute some, characteristics to the term and define it exhaustively. Therefore, even the Income Tax Act, 1961, gives an inclusive definition of the term. It specifies what is included in the term “Income”.
Definition of Income – Sec 2(24) of the Income Tax Act 1961
section 2(24) of the Act defines “Income” to include the following items :
1) Profits and Gains – This is one of the major sources of income and will be discussed in detail.
2) Dividends -The definition of dividend has been given in Sec. 2(22) which expands the meaning of the term.
3) Voluntary Contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, or by a scientific research association or sports association. If the contribution is made with the specific instruction that it shall form a part of corpus of the trust or the institution, it shall not be treated as income.
- Contributions received by a trust created wholly or partly for charitable or religious purposes.
- Contributions received by a scientific research association.
- Contributions received by a fund or institution set up for charitable purposes and notified u/s 10(23c)(iv)(v).
- Contribution received by any university or other educational institution, hospital referred in section 10(23c).
4) The value of perquisite or profit in lieu of salary. These have been defined in Sec. 17 and will be dealt with while discussing income from ‘salaries’.
5) Any special allowance or benefit, other than perquisite included in (4) above specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit.
6) Any allowances granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a lace where lie ordinarily reside to compensate him for the increased cost of living.
7) The value of any benefit or perquisite obtained from a company either by a director or by a person who has a substantial interest in the company or by a relative of such director or person.
8) The value of any benefit or perquisite, whether convertible into money or not which is obtained by a beneficiary or a trustee from a trust will be treated as taxable income in the hands of the beneficiary or the trustee, as the case may be.
9) Any compensation or other payment made to the person managing the affairs of a company in connection with the termination of his office and the income derived by a trade, professional or similar association for specific services rendered or done to its members and chargeable profit under Section 59.
10) The value of any benefit or perquisite whether convertible into money or not, arising from business or the exercise of a profession under’section 28 (iv).
11) Capital gains arising from the transfer of a capital asset.
12) The profits and gains of any business of insurance carried on by a mutual insurance company or by a cooperative society computed in accordance with Section 44.
13) Any sum chargeable to income tax as profits and gains of business or profession or as recovery of losses, expenses or trading liability in respect of which the assessee had been granted a deduction in a previous year or deemed profits.
14) Profit on sale of a license granted under the Imports (Control) Orders, 1955.
15) Any cash assistance received or receivable by any person against exports under any scheme of the Central Government.
16) Any duty of customs or excise repaid or repayable to any person against exports.
17) Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort and betting of any form or nature whatsoever.
18) Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund set up under the Employees’ State Insurance Act or any other fund for the welfare of such employees.
It is important to note that the items described under (13) above are supposed to be casual in nature and therefore an amount of Rs. 5,000 thereof is not taxed at all.
Income – Basic Principles
As had been mentioned at the very outset, Definition of Income – Sec 2(24) of the Income Tax Act 1961 does not define the concept of income but merely states what amounts are to be included in the term ‘Income’. The word income has been given a very wide meaning as per The definition of Income – Sec 2(24) of the Income Tax Act 1961. Therefore, in the absence of any such guidelines, the Income Tax Department and the taxpayers have to depend upon the various judgments of the High Courts and the Supreme Court.
All receipts are not income
All receipts are not income.’ Only those receipts have to be treated as income which ‘satisfy the tests laid down by various High Courts and Supreme Court.
Other Clarifications – What is Not Income?
The word ‘Income’ connotes a periodical monetary receipt coming in from some definite source with some sort of regularity. The source need not be a continuously productive one, but must be one whose object is the production of income.
2) Income is a periodical yield measurable in terms of money or money’s worth and arises out of use of real or personal property i.e. the income may be received in cash or kind. Thus the receipts in kind, which can be measured ‘in terms of money shall be taxable as income.
3) Periodicity or regularity at least expected regularity are important elements of income. Regularity does not imply that a single receipt is not income.
4) Income includes monies that have become due though not received.
5.) A receipt which is ‘income’ will continue to be so even if it is exempted from tax.
6) Income means real income. Fictional or technical income cannot be termed income for the sr of the Income Tax Act, 1961.
7) Income must come from outside. Pocket money received by a student from his father cannot be termed income.
8) Legality or otherwise of income or source of income does not dictate whether a receipt can be termed income. You are required to pay tax on illegally earned income as well. This however, does not grant immunity from prosecution.
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