For the purpose of collection of tax, income is classified into _________.

The correct answer is Five heads.

Key Points

• In India, for the purpose of tax collection, income is categorized under five heads as per the Income Tax Act, 1961.
• The five heads of income are: Income from Salary, Income from House Property, Income from Business or Profession, Income from Capital Gains, and Income from Other Sources.
• This classification ensures systematic computation and taxation of income based on its nature and source.
• Taxpayers must report their income under the appropriate head while filing their income tax returns.
• The classification helps in differentiating tax rates and deductions applicable to each category of income.

Additional Information

• Income from Salary:
  • This head includes earnings received by an individual from an employer, such as basic salary, allowances, and bonuses.
  • Deductions such as standard deduction and exemptions like HRA are applicable under this category.
• Income from House Property:
  • This head includes rental income earned from property owned by the taxpayer.
  • Deductions like 30% standard deduction and interest on home loans are allowed under this category.
• Income from Business or Profession:
  • This head covers income earned from any business or professional activity conducted by the taxpayer.
  • Expenses directly related to business operations can be deducted under this head.
• Income from Capital Gains:
  • This head pertains to profits earned from the sale of capital assets like stocks, real estate, or mutual funds.
  • Capital gains are categorized as short-term or long-term, with different tax rates applicable to each.
• Income from Other Sources:
  • This head includes residual income such as interest from savings accounts, dividends, lottery winnings, etc.
  • Deductions such as interest on savings account (up to ₹10,000) under Section 80TTA are applicable.