What are the Five Features of Tax?

Taxes are compulsory payments that every eligible citizen and business must make to the government. Let’s check their five key features: Different types of taxes Taxes are divided into two main types: Direct taxes, like Income Tax, are paid directly by individuals or businesses to the government. Indirect taxes, like Goods and Services Tax (GST), are added to the price of goods and services and collected by sellers. Additionally, the government levies some other taxes as well, such as: Property Tax Custom Duty Entertainment Tax, and more. Mandatory nature Paying tax is not a choice! It is a legal obligation. Everyone who earns above the basic exemption limit is legally required to pay Income Tax (as per the applicable provisions). Paid regularly Taxes are not one-time payments. They are paid at fixed times, such as monthly, quarterly, or yearly. The frequency of payment depends on the type of tax. For example, Income Tax is usually paid quarterly or annually through advance tax or self-assessment. GST is paid monthly or quarterly based on the sales and purchases of a business. Used for public welfare The money collected through taxes is used by the government to pay for services like: Healthcare Education Defence Roads Other public needs Taxes are the main source of government income. No direct return to payer When you pay tax, you don’t get a personal service or product in return (no quid pro quo). Instead, the money is used for the benefit of all citizens (such as building public roads or funding hospitals).

What is Section 5 of Income Tax Act?

Section 5 of the Income Tax Act, 1961, explains what types of income will be taxed in India based on whether a person is a resident or a non-resident. Resident Non-resident If a person is a resident in India, then all income will be taxed, whether earned in India or abroad. If a person is a non-resident, then only income earned or received in India will be taxed. Through the provisions of this section, you can determine: How much income is taxable and How taxation rules vary based on: Where the person lives Where the income comes from Please note that the Central Board of Direct Taxes (CBDT) is the government authority that oversees income tax laws in India.

What is salary section 15 to 17?

Sections 15 to 17 of the Income Tax Act deal with how salary income is taxed. The law defines salary as the regular payment received by an individual from their employer for work done under a contract. It includes: Basic salary Allowances Bonuses Commissions Advance or arrears of salary Any such income is taxable in the year it is received or due, whichever is earlier.

What is head of salary in income tax?

The "head of salary" under the Income Tax Act refers to one of the five income heads. Covered in Sections 15 to 17, this head includes all earnings from employment. This earning can be in the form of: Basic pay Allowances Bonuses Commissions Pensions These payments must be made by an employer, current or former. As per the Union Budget 2025, a salaried assessee opting for the new regime can claim these two deductions: Standard deduction of Rs. 75,000 and You can claim a deduction for your employer’s National Pension System (NPS) contribution under Section 80CCD(2). It is capped at 14% of salary.

What is portfolio income?

Portfolio income is the money earned from investments. It refers to income generated from: Shares Bonds Mutual funds Fixed deposits Property sales Some common sources of portfolio income are dividends, interest, and capital gains. Be aware that such income is considered passive income because you don’t work actively for it (like in a job or business). This type of income must be reported while filing your income tax return. Usually, it is taxed under the head Income from Other Sources and Capital Gains.

Who is liable to pay income tax?

Income tax must be paid by all persons who earn above the basic exemption limit. As per the Union Budget 2025, the latest limits are: Rs. 4,00,000 under the new regime and Rs. 2,50,000 under the old regime This rule applies to Individuals and Hindu Undivided Families (HUFs). For other entities, tax is applied from Rs. 1 onward of taxable income. Let’s see how: Partnership firms and LLPs are taxed at a flat rate of 30%. Companies are taxed at a prescribed rate (usually 22% or 25%, depending on turnover and conditions). AOPs and artificial persons are also taxed at fixed slab rates without any basic exemption.

Can I have income from multiple heads in a single financial year?

Yes, in a year, a person can: Earn from multiple sources of income and Categorise the income earned under different heads of income For example, say someone may: Receive a salary Earn rent from the property Gain profit from selling shares Receive interest from savings All such income must be shown separately under their respective heads when filing the tax return. Be aware that total income is calculated after clubbing all heads and applying deductions, if any, as per the Income Tax Act.

What is the meaning of Taxable Income?

Taxable income is the part of your total income on which income tax is charged. It is not your full income but the income left after applying deductions and exemptions. Let’s see how it is calculated step-by-step: Add all your incomes First, you collect all the income you earned during the financial year. This includes salary, rent, business profit, interest, capital gains, etc. Classify the income Next, you group each income under the correct category (called “heads of income”). There are 5 heads: House Property Business or Profession Capital Gains Other Sources Salary Calculate income under each head You compute the income for each head separately as per the rules given in the Income Tax Act. Add everything together Once each head’s income is calculated, you total them to arrive at your Gross Total Income (GTI). Apply deductions You subtract the eligible deductions (like those under Section 80C, 80D, etc.) from the Gross Total Income. The result is called your Net Taxable Income. Apply the tax slab Finally, you apply the applicable tax slab rates to your taxable income. This lets you compute how much tax you need to pay.

Which income falls under the head ‘Income from Salaries’?

‘Income from Salaries’ includes all payments a person gets as an employee from their employer. This head covers the following: Basic salary Bonus Allowances like house rent or travel Benefits given in kind (say, company-provided housing or a car) Even if some payments are not made in cash, they are still counted if they are part of the job. All these are taxable under the salary income head.

Which incomes are considered as ‘Income from House Property’?

Income from house property means the rent you receive from letting out a property. Whether the property is rented for residential or commercial use, the rent earned is taxable under this head. Additionally, the “notional rent” computed on self-occupied house properties is taxable under this head. As per the Union Budget 2025, the government has changed the rules related to taxation of self-occupied house properties. Earlier, Only one house could be treated as self-occupied and Its annual value (used to calculate tax) could be considered nil. This means no tax was charged on notional rent for that house. But now, starting from April 1, 2025 (for the Assessment Year 2025–26), a taxpayer can: Claim two houses as self-occupied and Show their annual value as nil (without meeting any specific condition). However, if someone owns more than two houses, the third and additional houses will still be taxed based on notional rent (even if they are not actually rented out) under the head “Income from House Property”.

Which incomes are covered under the head ‘Income from Capital Gains’?

Capital gains are the profits earned from selling assets like; Land Buildings Shares Mutual funds These gains are classified as short-term and long-term based on the holding period. Let’s see how: Long-Term Capital Gains (LTCG) If you hold a capital asset for a long period (more than 12 or 24 months, depending on the type of asset) and then sell it, the profit is called a Long-Term Capital Gain. As per Budget 2024, these gains are taxed at a flat rate of 12.5%. Earlier, you could reduce your tax burden by applying indexation. That benefit is no longer available. However, if you're selling listed equity shares (i.e. shares traded on stock exchanges), you don’t have to pay tax on the first Rs. 1.25 lakh of LTCG. This is a tax exemption benefit. Short-Term Capital Gains (STCG) If you sell your asset within a short period (within 12 or 24 months), the profit is a Short-Term Capital Gain. Normally, these gains are taxed as per your income tax slab (just like salary). But in case of certain specified assets, STCG is taxed at a flat 20% rate instead of slab rates.

What are the incomes covered under the head ‘Income from Profits and Gains from Business and Profession’?

This head covers all the income earned from running a: Business Trade Professional services like medicine, law, or accountancy All income from these activities is taxable under this head. Expenses directly related to the business, like rent, salaries, or travel costs, can be deducted. Only the remaining profit is taxed. The income must be calculated according to the rules given in the Income Tax Act.

Which incomes are covered under the head ‘Income from Other Sources’?

“Income from Other Sources” is a residual head. It covers all incomes that don’t fall under: Salary House property Business/ profession Capital gains Some common examples of incomes taxed under this head are: Interest earned from savings accounts or fixed deposits Dividend income Lottery winnings Gifts from non-relatives Family pension, and more Additionally, under the old regime, some deductions are also allowed (like Section 80TTA, 80TTB). Their applicability depends on the type of your income.

5 Heads of Income: Different Income Under Income Tax Act

2 min

17 June 2025

Taxes might seem complicated, but they do not have to be. In India, income tax is categorised into five distinct heads of income. These categories help simplify taxation and make it easier to declare earnings. Whether you are a salaried professional, a business owner, or an investor, understanding these categories can help you plan your taxes better and even save money.

Let’s dive into the 5 heads of income tax and see how they affect your financial planning.

Section 14 of the Income Tax Act – Heads of Income

Section 14 of the Income Tax Act, 1961, explains how different sources of income must be grouped for tax purposes. The law divides all types of income into five specific categories. Such a categorisation is done to make tax calculation easier and more structured.

Every person may not earn income from all five categories, but they still need to know which part of their income belongs to which category. This helps in:

Calculating total taxable income correctly
Filing the Income Tax Return (ITR) in the correct format
Avoiding mistakes in reporting and tax payment

Please note that at the end of each financial year, you, as a taxpayer, must organise your income based on these five categories (called "heads of income"). This step must be performed before calculating your income tax liability.

1. Income from salary

If you are working for an employer, your monthly pay check falls under this head. It includes:

Basic salary
Allowances (like HRA, transport allowance)
Perquisites (company car, rent-free accommodation)
Bonuses

Taxability: Tax is calculated based on the gross salary minus exemptions like House Rent Allowance (HRA) and standard deduction (Rs. 50,000 annually).

Pro tip: You can save more by maximising your deductions. For instance, if you are paying rent and do not receive HRA, you can still claim deductions under Section 80GG. Now, if you have taken a home loan, the interest paid on the loan can help reduce your taxable income under the section for house property (more on that later).

2. Income from house and property

This head includes any earnings you get from the property, whether it is rented out or your second home. Even a self-occupied property can fall under this category, with specific rules for deductions.

Taxability: Income from house property is calculated as: Net Annual Value (NAV) = Gross Annual Value (GAV) - Municipal taxes paid

You can claim deductions under:

Standard deduction: 30% of NAV
Interest on home loan: Up to Rs. 2,00,000 annually for self-occupied property

Pro tip: Investing in property not only grows your wealth but also offers tax-saving opportunities. Homebuyers with a home loan can enjoy significant savings by claiming both principal (under Section 80C) and interest deductions.

3. Income from business or profession

Are you a freelancer, consultant, or business owner? This category is for you. Income earned from your trade, profession, or business is covered here.

Taxability: Business owners are taxed on their profits after deducting expenses like rent, salaries, and utilities. Professionals (like doctors or chartered accountants) can also deduct expenses related to their work, such as equipment or office rent.

Pro tip: Keep meticulous records of expenses to maximise your deductions and reduce tax liability. If you run your business from a home office and have a home loan, you might be able to allocate a portion of the interest as a business expense.

4. Income from capital gains

This head applies when you earn profits from selling assets like property, stocks, or mutual funds. Capital gains can be:

Short-term: Gains from assets held for a short period (like stocks held for less than a year).
Long-term: Gains from assets held for longer periods.

Taxability: Short-term gains are taxed as per your income tax slab. Long-term gains have a lower tax rate (for example, 10% or 20%, depending on the asset).

Pro tip: Reinvesting in specific assets like residential property can help you claim exemptions under Sections 54 and 54F. If you are reinvesting in property, a Bajaj Finserv Home Loan can make it easier to afford a dream home while saving on taxes.

5. Income from other sources

Anything that does not fit into the other four categories lands here. Common examples include:

Interest from savings accounts, fixed deposits, or bonds
Dividends
Gifts exceeding Rs. 50,000 from non-relatives
Earnings from lotteries or game shows

Taxability: Interest and dividends are taxed as per your income slab. Certain exemptions may apply to savings account interest (up to Rs. 10,000 under Section 80TTA.

Pro tip: Make sure you disclose all earnings to avoid penalties during tax assessments.

Income from other sources

The “Income from Other Sources” is one of the five heads mentioned u/s 14 of the Income Tax Act. It acts as a residual head and covers all types of income that do not fall under the other four heads:

• Salary
• House property
• Business or profession
• Capital gains

If you earn money that does not clearly belong to any of these categories, it is taxed under this head. Some common examples of such income are:

• Interest income from savings accounts, fixed deposits, or bonds/ debentures
• Dividends received from shares or mutual funds
• Winnings from lotteries, games, gambling, or betting
• Gifts received from non-relatives if the total value is more than Rs. 50,000 in a financial year
• Family pension, which is money received regularly after the death of a pensioner
Tax treatment
Under the head “Income from Other Sources”, different incomes are taxed as follows:
Income source
Amount
Interest income
• Interest income is taxed based on your income tax slab.
• However, individuals can claim a deduction of up to Rs. 10,000 on savings account interest under Section 80TTA.
• Senior citizens can claim up to Rs. 50,000 deduction on fixed deposit interest under Section 80TTB.
Dividends
• Dividends from Indian companies or mutual funds are added to your total income.
• They are taxed according to your slab.
Winnings from lotteries, crossword puzzles, game shows, and betting income
• As per Section 115BBJ, lottery and betting income is taxed at a special rate of 30% (after including cess, the rate is 31.20%).
• Also, such income attracts a high TDS rate of 30% u/s 194BA without any threshold limit.
• No deductions are allowed from this income.
Gifts
• Gifts from non-relatives above Rs. 50,000 in a year are taxable.
• Gifts from relatives (mostly holding a blood relation like parents, siblings, or spouse) are 100% exempt.

115JC of the Income Tax Act

Section 115JC of the Income Tax Act deals with Alternative Minimum Tax (AMT). To promote investment and development in key sectors, the government gave profit-linked deductions. This allowed businesses to reduce their tax if they earned income from “eligible activities”.

However, some taxpayers misused this provision. They:

• Claimed unjustified deductions
and
• Ended up paying marginal tax (even if they were required to pay regular tax)

To prevent such situations, the government introduced AMT. It is similar to MAT (Minimum Alternate Tax), which applies to companies. AMT, however, applies to other types of taxpayers, such as:

• Individuals
• Hindu Undivided Families (HUFs)
• Association of Persons (AOPs)
• Body of Individuals (BOIs)
• Other non-corporate taxpayers
Who is covered under AMT
Individuals, HUFs, AOPs, and BOIs are covered under AMT only if their adjusted total income is more than Rs. 20 lakh in a financial year. To other non-corporate taxpayers, AMT applies regardless of income level.
When does AMT apply
AMT applies only when the taxpayer claims any of the following deductions:

Deductions
Explanation
Section 80H to 80RRB (excluding Section 80P)
These sections cover deductions for:
• Exports
• Research
• Royalties
• Other similar activities
Section 35AD
Offers a deduction for “capital expenses” on certain specified businesses
Section 10AA
Provides a deduction for income from Special Economic Zones (SEZs)

If you are claiming any of these deductions and your income crosses the Rs. 20 lakh limit (if applicable), you must calculate your tax under AMT.
AMT rate
The rate of AMT is 18.5% of Adjusted Total Income. Also, surcharge and cess are added (as per applicable rates) over and above AMT.
Reporting requirement
If AMT applies, the taxpayer must get a report from a Chartered Accountant (CA). The CA certifies that the Adjusted Total Income and AMT have been calculated as per the law. This report must be submitted as part of the tax return.
Heads of Income vs Sources of Income
The terms “Heads of Income” and “Sources of Income” are often used in taxation and may sound similar. However, they refer to entirely different concepts. Let’s understand in detail:
A) Heads of income
Under the Income Tax Act, the government has created five heads of income to group all possible types of income that a person may earn. These heads are:

Heads of income
Explanation
Income from salary
Money received from employment
Income from house property
Rent or income from owned property
Profits and Gains from Business or Profession (PGBP)
Income from running a business or profession
Capital gains
Profit from selling assets like:
• Land
• Shares
• Property
Income from other sources
It covers all residual income that doesn’t fit in the above heads (say, interest, lottery, gifts, etc.)

These heads are used for tax classification. Before filing your ITR, you must categorise all your sources of income under the correct heads.
Sources of income
Sources of income mean the actual ways a person or business earns money. These vary widely and are not limited to the five heads. Let’s check how:

For individuals
For businesses
• Salary
• Bank interest
• Commission
• Rental income
• Freelance work
• Product sales
• Service income
• Investment returns
• Government grants

So, you can clearly observe that sources describe where the money comes from. You must categorise these sources in the five heads of income as mentioned u/s 14 of the Income Tax Act.

Smart tax planning with a home loan

Tax planning is not just about saving money—it is about smart investments. A home loan can reduce your taxable income while helping you achieve the dream of owning a house.

Here is how:

Principal deduction: Under Section 80C, claim up to ₹1.5 lakh annually.
Interest deduction: Under Section 24(b), claim up to ₹2 lakh annually.
Additional benefits: First-time homebuyers can claim an extra deduction of Rs. 1.5 lakh under Section 80EEA.

Why choose Bajaj Finserv Home Loan?

At Bajaj Finserv, we make owning a home simple and affordable. With competitive interest rates, flexible repayment terms, and minimal paperwork, you can take the first step toward financial freedom.

Here are a few key benefits of choosing Bajaj Finserv Home Loan:

1. High loan amount: Secure funding up to Rs. 15 crore* to turn your dream home into reality.

2. Low interest rates: Enjoy starting 7.49%* p.a., and EMIs as low as Rs. 687/lakh*.

3. Quick approval: Get approved within 48 Hours* of applying – sometimes even sooner.

4. Flexible repayment tenure: Choose a repayment term of up to 32 years for comfortable EMIs.

5. Simple application: Take advantage of doorstep document collection for a smooth process.

6. Balance transfer facility: Move your existing home loan and get a with better terms.

Plus, a home loan does not just help you buy a house—it is also a powerful tool for tax savings. Whether you are planning to buy your first home or invest in a second property, a Bajaj Finserv Home Loan is here to support you every step of the way.

Ready to get started? Apply now and make the most of your tax benefits today!

Conclusion

The Income Tax Act, 1961, requires taxpayers to group their different sources of income under five specific heads. These are salary, house property, profits/ gains from business and profession, capital gains, and other sources.

These heads cover all possible types of income an individual or business may earn. By understanding these categories, you, as a taxpayer, can file your ITR correctly and pay the right amount of tax.

Additionally, such categorisation helps the government in proper tax collection. Every taxpayer must follow the rules related to these heads of income. If a person tries to avoid tax by not reporting income under the correct head or trying to hide income, it is considered a violation of the law.

Such actions lead to legal penalties. Therefore, knowledge of these five heads is necessary to meet legal obligations and avoid legal consequences.

Home loan calculators

Home Loan EMI Calculator	Home Loan Tax Benefit Calculator	Home Loan Eligibility Calculator
Home Loan Prepayment Calculator	Stamp Duty Calculator	Income Tax Calculator

Understanding the 5 Heads of Income Tax in India

Section 14 of the Income Tax Act – Heads of Income

1. Income from salary

2. Income from house and property

3. Income from business or profession

4. Income from capital gains

5. Income from other sources

Smart tax planning with a home loan

Why choose Bajaj Finserv Home Loan?

Conclusion

Home loan calculators

Frequently asked questions

Bajaj Finserv App for All Your Financial Needs and Goals

Disclaimer

Please wait

Languages

Application Forms

Products Portfolio

Loans

Insurance

Finance for Professionals

Investments

Pocket Subscription

Bajaj Mall

Services

Wallets & Cards

Value Added Services

Payments

Calculators

Legal

Reach Us

Corporate Office

Bajaj Finance Limited Regd. Office

Corporate Identity Number (CIN)

IRDAI Corporate Agency (Composite) Regn No.

URN - WEB/BFL/23-24/1/V1

Bajaj Finserv Limited Regd. Office

Corporate Identity Number (CIN)

Resident	Non-resident
If a person is a resident in India, then all income will be taxed, whether earned in India or abroad.	If a person is a non-resident, then only income earned or received in India will be taxed.

Understanding the 5 Heads of Income Tax in India

Section 14 of the Income Tax Act – Heads of Income

1. Income from salary

2. Income from house and property

3. Income from business or profession

4. Income from capital gains

5. Income from other sources

Smart tax planning with a home loan

Why choose Bajaj Finserv Home Loan?

Conclusion

Home loan calculators

Frequently asked questions

Bajaj Finserv App for All Your Financial Needs and Goals

Do more with the Bajaj Finserv App!

Disclaimer

Related videos

Documents required to get a Bajaj Finserv Home Loan

Home Loan eligibility criteria for salaried

Things you need to know about pre-approved home loan

Things you need to know before applying for a Home Loan

Please wait

Loans

Insurance

Finance for Professionals

Investments

Pocket Subscription

Bajaj Mall

Services

Wallets & Cards

Value Added Services

Payments