Heads of Income

Section 14 of the Income Tax Act classifies all taxable income under five heads, and every source of income a person earns must be classified under one (and only one) of these:

1. Income from Salary — income received by an employee from an employer, including basic salary, allowances, and the value of perquisites, in return for services rendered under a contract of employment.
2. Income from House Property — the annual value of a building (and land attached to it) owned by the taxpayer, whether it is actually let out, self-occupied, or otherwise not used for the owner's own business/profession.
3. Profits and Gains of Business or Profession (PGBP) — income earned from carrying on any trade, commerce, manufacture, or a profession/vocation, computed after deducting allowable business expenses from business receipts.
4. Capital Gains — profit or gain arising from the transfer (sale, exchange, etc.) of a capital asset (e.g. land, building, shares, securities), classified as short-term or long-term depending on the period for which the asset was held before transfer.
5. Income from Other Sources — a residuary head covering any income that does not fall under the first four heads, e.g. interest on bank deposits, dividends, winnings from lotteries/games, and family pension. …