Heads of income
[Section 13 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Save as otherwise provided in this Act, all incomes shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:—
- (a) Salaries;
- (b) Income from house property;
- (c) Profits and gains of business or profession;
- (d) Capital gains; and
- (e) Income from other sources.
FAQs on Section 13 of the Income Tax Act 2025
1. What is the significance of Section 13 of the Income Tax Act, 2025?
Section 13 classifies all taxable income into five heads for the purpose of computing total income and levying income tax.
2. What are the different heads of income under Section 13?
The five heads of income under Section 13 are:
(a) Salaries
(b) Income from house property
(c) Profits and gains of business or profession
(d) Capital gains
(e) Income from other sources
3. Why is income classified into different heads?
Income is classified into different heads to ensure systematic taxation, correct deductions, and accurate computation of total income.
4. Can one source of income fall under multiple heads?
No, each income source is categorized under a specific head based on its nature, as per the provisions of the Act.
5. What happens if an income does not fit into any of the first four heads?
Such income will be classified under “Income from other sources” by default.
6. What constitutes income under “Salaries”?
Salaries include wages, pensions, gratuity, allowances, commissions, perquisites, bonuses, and any advance salary received.
7. Are employer-provided benefits taxable under “Salaries”?
Yes, perquisites and allowances provided by employers are generally taxable, unless specifically exempted.
8. Is pension considered salary income?
Yes, a pension received by a retired employee is treated as salary income, except for commuted pensions in certain cases.
9. Are bonuses taxable under the salary head?
Yes, any bonus received by an employee is included in their taxable salary income.
10. Is leave encashment taxable?
Yes, leave encashment is taxable unless exempted under specific provisions of the Act.
11. What qualifies as “Income from house property”?
Rental income from buildings, houses, or land appurtenant to buildings falls under this category.
12. Is self-occupied property taxable?
No, a self-occupied property is not taxed, but certain deemed income provisions may apply.
13. Can I claim deductions on home loan interest?
Yes, interest on home loans is deductible under this head up to a specified limit.
14. How is income from multiple rented properties taxed?
Each property’s rental income is assessed separately, and deductions are allowed as per the Act.
15. What is the standard deduction for house property income?
A standard deduction of 30% of the net annual value is allowed, irrespective of actual expenses.
16. What is included under “Profits and gains of business or profession”?
Income from business, trade, manufacturing, freelancing, professional services, and any speculative transactions falls under this head.
17. Are business expenses deductible?
Yes, legitimate business expenses such as rent, salaries, and utility costs are deductible.
18. Is income from freelancing covered under this head?
Yes, freelancing income is considered professional income and is taxable under this head.
19. How is partnership firm income taxed?
The firm is taxed separately, and the partners are taxed on their share of profit and remuneration, subject to conditions.
20. Is depreciation on assets deductible in business income?
Yes, depreciation is an allowable deduction while computing business income.
21. What is capital gain income?
Capital gains arise from the sale of capital assets such as land, buildings, shares, and securities.
22. What are the types of capital gains?
Capital gains are classified as short-term (holding period < specified limit) and long-term (holding period ≥ specified limit).
23. How is capital gain tax computed?
Tax is computed based on the gain amount and the applicable tax rate, which varies for short-term and long-term capital gains.
24. Are there any exemptions for capital gains?
Yes, exemptions are available if the proceeds are reinvested in certain assets like residential property or specified bonds.
25. Is the sale of inherited property taxable under capital gains?
Yes, if an inherited property is sold, the capital gain is calculated based on its cost of acquisition.
26. What is included under “Income from other sources”?
Income that does not fit under the first four heads, such as interest income, lottery winnings, dividends, and gifts, is included here.
27. Is dividend income taxable?
Yes, dividends from companies are taxable as per the prescribed tax rates.
28. Are winnings from lottery or gambling taxable?
Yes, winnings from lottery, betting, and gambling are taxable at a special rate without deductions.
29. Is interest income taxable?
Yes, interest earned from bank deposits, bonds, or other financial instruments is taxable.
30. Are gifts taxable?
Gifts exceeding the specified exemption limit (except from relatives) are taxable under this head.
31. Can a taxpayer have income under multiple heads?
Yes, an individual can have income under multiple heads, such as salary income, rental income, and capital gains.
32. How is total income computed?
Total income is computed by aggregating income from all heads, allowing for deductions, and applying the applicable tax rates.
33. Are agricultural incomes taxable under Section 13?
Agricultural income is generally exempt, but partial integration with other income may apply for tax rate purposes.
34. Can losses from one head of income be set off against another?
Yes, losses from certain heads (such as business or house property) can be set off against other incomes as per the Act.
35. What happens if a taxpayer misclassifies their income?
Incorrect classification can lead to penalties, reassessment, or disallowance of deductions by tax authorities.
36. Is foreign income taxable under Section 13?
Yes, if the taxpayer is a resident, their global income is taxable. Non-residents are taxed only on income earned in India.
37. Are deductions available for all heads of income?
Deductions vary across heads. For example, standard deduction applies to salary and house property, while capital gains have reinvestment exemptions.
38. How does the government verify income classification?
The tax department uses return filings, audits, and scrutiny assessments to verify correct income classification.
39. Can income tax rules change after April 1, 2026?
Yes, amendments may be introduced through future Finance Acts or government notifications.
40. Where can I get more details on Section 13?
You can refer to the official Income Tax Act, 2025, consult a tax professional, or check updates on the income tax department’s website.
The Income Tax Act, 2025 under Section 13 provides a structured classification of income into five distinct heads: Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources. This classification ensures clarity and precision in the computation of taxable income, with each category having specific rules for deductions, exemptions, and tax rates.
Understanding the various heads of income is crucial for individuals, businesses, and professionals to ensure compliance with tax regulations and make the most of available exemptions and deductions. Proper classification and accurate reporting of income are essential for taxpayers to avoid penalties and optimize their tax liabilities.
To navigate this framework efficiently, taxpayers can refer to the detailed provisions of the Act or seek guidance from tax professionals.
