How many heads of income are there in computing Gross Total Income?

The correct answer is 'Five'

Key Points

• Heads of Income in Computing Gross Total Income:
  • In India, the Income Tax Act, 1961, classifies income under five heads for the purpose of computing Gross Total Income (GTI).
  • The five heads of income are:
    • Income from Salaries: Includes income earned from employment, such as wages, salary, pensions, and allowances.
    • Income from House Property: Income derived from owning house property, which is subject to certain deductions like municipal taxes and standard deduction.
    • Profits and Gains of Business or Profession: Income earned from business or professional activities, including freelancers and consultants.
    • Capital Gains: Income earned from the transfer of capital assets like property, stocks, or bonds, categorized as short-term or long-term gains.
    • Income from Other Sources: Residual category covering income not included in other heads, such as interest, dividends, lottery winnings, or gifts.
  • Each head has specific rules for computation, deductions, and exemptions, ensuring accurate and fair taxation.

Additional Information

• Explanation of Incorrect Options:
  • Six: There are only five heads of income under the Income Tax Act. A sixth head does not exist.
  • Three: The classification into three heads of income is incorrect and oversimplified, as the Income Tax Act explicitly defines five distinct categories.
  • Four: While four heads of income might cover some major sources, it excludes one essential head, making the classification incomplete.
• Purpose of Classifying Income:
  • The classification of income into these five heads simplifies taxation and ensures that all sources of income are accounted for, preventing tax evasion.
  • It also allows for specific deductions and exemptions under each head, making the tax system more equitable and organized.