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Basic Principles to determine an income.

Updated on November 11, 2013

Basic principles to determine an income

Only those receipts have to be treated as income which satisfy the tests laid down by various High Courts and Supreme Court.

1.  The word 'income' means a periodical monetary receipt coming in from some definite source with some sort of regularity.  The source need not be a continuously productive one, but must be one whose object is the production of income.

2.  Income is a periodical yield measurable in terms of money or money's worth and arises out of use of real or personal property i.e. the income may be received in cash or kind.  Thus the receipts in kind, which can be measured in terms of money shall be taxable as income.

3.  Periodicity or regularity or at least expected regularity are important elements of income.  Regularity does not imply that a single receipt is not income.

4.  Income includes money that have become due though not received.

5.  A receipt which is income will continue to be so even if it is exempted from tax.

6.  Income means real income.  Fictional or technical income cannot be termed income for the purpose of the Income Tax.

7.  Income must come from outside.  Pocket money received by a student from his father cannot be termed income.

8.  Legality or otherwise of income or source of income does not dictate whether a receipt can be termed income.  You are required to pay tax on illegally earned income as well.  This however, does not grant immunity from prosecution.

What is an income

As per income Tax Act, 1961 the following receipts are comes under the definition of income.  This income tax extends to the entire country including the State of Jammu and Kashmir, Pondicherry, Dadra Nagar, Haveli, Goa, Daman and Diu and Sikkim. Income is levied on the income of an entity.  What is income.  Money received in the following forms are treated as an income:

1. Profits

2.  Dividend (Dividend received from a domestic company is tax free in India)

3.  Income from voluntary contributions received by followings: 
a.  Any trust or institution which has been established for the purpose of charitable or religious purposes.
b.  A scientific research association
c.  a games or sports association
d.  a charitable fund or trust or institutions created for wholly public religions purposes.

4.  Refund of excise duty.

5.  Recovery of bad debts allowed in the past

6.  Capital gain

7.  Profits generated from any business or profession.

8. Value of benefit or perquisite received by representative assessee.

9. Value of any benefit or perquisites received by any director of company or any person having substantial interest in company or his relative.

10.  Any allowance granted to meet increased cost of living.

11.  Income from Marketing Association.

12.  Income from units of mutual fund

13.  Income from units of Unit Trust of Inida.

14.  Any special allowance or benefit besides perquisites to meet his expenses for performing his duties.

15.  Perquisites or profits in lie of salary, taxable in salary head

16. Balancing charge

17.  Any interest, salary, bonus, commission and other remuneration received by partner of a firm.

18.  Amount received from winning of lottery, crossword puzzles, placards and horse race.  The term lotter shall include winning through  draws or any other ways.  Play cards and other games shall also include any games or any other entertainment program  on televisions, for the purpose of winning the prize.

19.  Amount received from employees for contribution in following finds.
a.  any fund established under employees state insurance Act 1948
b.  any fund received for labor welfare.
c.  provident fund or superannuation fund for employees.

20.  Profits from sale of license received under import control order 1995

21.  Cash subsidy in respect of export under any scheme of Government of India

22. Sum received exceeding Rs. 50,000 from non-relative without consideration.

23. Sum received under Keyman Insurance Policy.  This sum also includes bonus.

24  Income shall include the profits and gain of any business of banking including providing credit facilities carried on by a co-operative society with its members.

Besides the above items, all other benefits and receipts are also treated as income under Income Tax Act.

The word income has a very wide meaning.  If any of the income which is not covered in the Income Tax Act, then the tax payers and Income Tax Departments have to depend on the various judgments of High Courts and Supreme Court to determine whether that receipt is a income or not.  All receipts are note income. 


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    • wiseoldaccountant profile image

      wiseoldaccountant 6 years ago from Buffalo and Orchard Park NY

      Good Hub!

      Please consider joining out team!

    • BMG profile image

      BMG 6 years ago from timor laste


    • Iamsam profile image

      Iamsam 6 years ago

      Deposit that money in the bank account then you will have bank records

    • BMG profile image

      BMG 6 years ago from timor laste

      money that come illegally actually have no any transactions statement and unregistered.How people have to pay income tax?

    • Iamsam profile image

      Iamsam 6 years ago

      Money that come illegally treated as an income and you must pay tax for the same.

      You are required to pay tax on illegally earned income as well. This however, does not grant immunity from prosecution.

      Thanks for the question

    • BMG profile image

      BMG 6 years ago from timor laste

      what do you think about the money that come illegally?is it called income?