What is Income? Explain in detail?

     Under sections 2 and 3 of the Income Tax Act, 1961, definitions of important terms used in the Act have given, some of which are as under:

           Income

     This is a very important term as income tax is charged in the income of a person. This term has not been defined in the Income Tax Act, except that it states as to what is included in income.

     Under this section income includes:

1.    Profits and Gains;

2.    Dividend;

3.    Voluntary contribution received by:

a.     A trust created for charitable or religious purpose, or

b.    By a scientific research association, or

c.     By a games or sports association institution, or

d.    Any university or other educational institution, or

e.     Any hospital or other institution, or

f.       An electoral trust;

4.    The value of any perquisite or profits in lieu of salary taxable under the head ‘salaries’;

5.    Any special allowance or benefit specifically granted to the assessee to meet his expenses wholly, necessarily and exclusively for the performance of his duties;

6.    Any allowance granted to the assessee either to meet his personal expenses at the place where he performs his duties or compensate him for the increased cost of living, for example, City Compensatory Allowances;

7.    The value of any benefit or perquisite which is obtained by any representative assessee;

8.  Any sum chargeable to income tax under the head ‘business’ or ‘profession’;

9.    Any Capital gains;

10. The profits and gains of any business of insurance carried on by a mutual insurance company or by co-operative society;

11.  Any winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever;

12.  Any sum received by the assessee from his employees or contribution for any provident fund superannuation fund or any fund set-up under the employees’ State Insurance Act or any other fund for the welfare of such employees;

13.  Any sum received under a key man insurance policy including the sum received by way of bonus on such policy.

Key man insurance policy means a life insurance policy taken by a person on the life of another person who is or was an employee of the first person or connected in any manner with the business.

The sum of key man insurance policy is assessable as following:

A.    When the sum is received by the organisation, who has taken the policy, it is assessable under the head profits and gains of business or profession.

B.    When the amount is received by the employee, it is assessable as profits in lieu of salary.

C.    When the amount is received by a person, where employer-employee relationship does not subsist, it is assessable under the head income from other sources.

14.  The profits and gains of any business of banking carried on by a co-operative society with its members;

15.  Any consideration received for issuing shares are exceeds the fair market value of the shares.

16.   Any sum of money received in advance in the course of negotiations for transfer of a capital asset and such negotiation fails, the amount so forfeited;

17.  If the assessee receives the following from the Central Government or a State Government or any authority or a body or agency it will be treated as income:

Subsidy or grant or cash incentive or duty drawback, or waiver or concession or reimbursement.

However, if such subsidy or grant or reimbursement is taken into account for determination of the actual cost of the asset, it will not be treated as income.

The LPG subsidy or other welfare subsidies received by individuals shall not be included in income.

18.   Any sum of money or value of property received without consideration or for inadequate consideration by any person from any person or persons on or after 1.4.2017

19.   Compensation or other payment, due or received by any person in connection with the termination of his employment or modification of the terms and conditions relating thereto.

20. The fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset.

           CONCEPT OF INCOME

      The above definition of income is not conclusive. It includes some other receipts also which are ordinary treated as income. In fact, income means a monetary income which derived from definite sources with some sport or regularity or expected regularity. These definite sources of income are: Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains and Income from Other Sources.

      Besides this, 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’.