Important rules of Income in Income Tax

    

       There are some other important rules regarding income, which are as under:

1.    There should be a definite source of income.

2.    An income earned, whether legally income or illegally, is taxable under the Income Tax Act. The Income Tax Act does not make any distinction between legal and illegal income. However, any expenditure incurred to earn an illegal income should be received regularly and provided it is income in view of other factors and considerations.

3.    It is not necessary that the income should be received can also be income, provided it is income in view of other factors and considerations.

4.    Income should be received from outside. In an intuition, if the income from subscription from its members exceeds its expenditure on its members the excess cannot be treated as taxable income, because the subscription was received from among the members themselves and the excess represents the excess is not received from outside, and will not be income.

Similarly, excess over expenditure, received by a club from facilities provided to members as part of advantages attached to such membership, is not taxable income.

5.    It is not essential that the income must received in the form of money. Receipts in or service having money equivalent can also be income.

6.    Temporary or Permanent Income. Whether the income is temporary or permanent, it is immaterial from the tax point of view.

7.    If an assessee has earned an income but has not actually received it, it will be treated as the income of the assessee, because he is entitled to receive it.

8.    Reimbursement of expenses is not income. Reimbursement of actual travelling expenses to an employee is not his income.

9.    Where under a legal obligation a charge is created on the income of person, then to the extent of such charge it will be deducted from his income.

10. Receipt on account of dharmada, gaushala, etc is not income.

11.  Pin Money received by wife for her personal expenses and small saving made by a woman.

12. Disputed Income. Any dispute regarding the title of income will not postpone or held up the assessment of such income. It will be taxed in the hands of the recipient of such income.

13. Diversion of income vs. Application of income. Diversion of income means that the income diverted to some other person under some legal obligation. If after receiving the income it is given to someone else it is application of income. Similarly, if a income is diverted to some other person voluntarily it is application of income. Where by an obligation, income is diverted before it reaches the assessee, it is diversion of income and not taxable; but there the income is required to be applied to discharge an obligation after such income reaches the assessee, the same is merely an application of income and tax liability cannot be avoided.

14.  Income may be in plus or minus. Minus income means loss, hence losses are also included in the term ‘Income’.