As the July 31 deadline for Income Tax Return (ITR) filing approaches, all eligible taxpayers are reminded of a crucial step in the tax computation process — classifying income under the five heads prescribed by the Income Tax Act, 1961. This structure, outlined under Section 14, is designed to make income assessment more accurate and transparent.
Understanding the Five Heads of Income Tax Before July 31 Deadline
Failing to file returns within the due date may attract interest penalties under Section 234A, 234B, and 234F of the Act, making it imperative for taxpayers to follow both classification and filing guidelines carefully.
Five Heads of Income as Defined by the Income Tax Act:
1. Income from Salary
This includes basic pay, allowances, bonuses, commissions, and perquisites. Salaried individuals whose income is limited to this stream are eligible to file their returns using the ITR-1 (Sahaj) form.
2. Income from House Property
Rental income from a residential or commercial property — whether fully or partially let out — falls under this head. Even those earning from sub-letting are required to declare it. Eligible taxpayers can use the ITR-1 form, provided there is only one house property and no carry-forward loss.
3. Income from Capital Gains
Profits earned from the sale of assets like shares, mutual funds, or real estate are classified under this category. Taxpayers with gains below ₹1.25 lakh may use ITR-1, while those with higher capital gains should opt for ITR-2.
4. Income from Business or Profession
This head applies to individuals who are self-employed, freelancers, consultants, or business owners. Depending on the nature and size of the business, they may need to file using ITR-4, ITR-5, or ITR-6.
5. Income from Other Sources
This residual category includes interest from fixed deposits, savings accounts, dividends, winnings from lotteries, or gifts received above the exemption limit. Taxpayers can include such income while filing under their applicable ITR form.
Timely Filing Is Essential
Experts advise taxpayers to assess all sources of income and choose the correct ITR form accordingly. Any misclassification or late filing can not only result in penalties but also trigger notices from the Income Tax Department.
Taxpayers are encouraged to visit the official portal — incometax.gov.in — to file returns and access detailed guidance on ITR selection.
