Skip to main content

Basic Principles to Determine an Income.

  • Author:
  • Updated date:

Helna is a postgraduate in Commerce who is working as a Manager. She loves sharing informative information with her readers.

An Income Should Be Measurable in Terms of Money or Money's Worth

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

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

Basic Principles to Determine an Income

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

  1. The word income means a periodical monetary receipt coming in from some specific source with some sort of regularity. The source needs not remaining continuously productive one but must be one whose object represents the production of income.
  2. Income is a periodical yield measurable in terms of money or money's worth and arises out of the use of real or personal property i.e., the income may be received in cash or kind. Therefore, 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 has become due but not received.
  5. A receipt which is income will continue to be so even if it is exempted from tax.
  6. Income represents 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. The legality or otherwise of income or source of income does not dictate whether a receipt can be termed income. You are required to remit tax on illegally earned income as well. This, however, does not grant immunity from prosecution.

What is an Income

As per the Income Tax Act, 1961 the following receipts are coming 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 (dividends received from a domestic company are tax-free in India.)
  3. Income from voluntary contributions received by the followings: (1. Any trust or institution which has been established for the purpose of charitable or religious purposes. 2. A scientific research association. 3.Games or sports association. 4. A charitable fund or trust or institutions created for wholly public religious 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 benefits or perquisites received by the representative assesses.
  9. Value of any benefit or perquisites received by any director of the company or any person having a substantial interest in the company or his relative.
  10. Any allowance granted to meet the increased cost of living.
  11. Income from Marketing Association.
  12. Income from units of mutual fund.
  13. Income from units of Unit Trust of India.
  14. Any special allowance or benefit besides perquisites to meet his expenses for performing his duties.
  15. Perquisites or profits in lieu of the salary, taxable in salary head.
  16. Balancing charge
  17. Any interest, salary, bonus, commission, and other remuneration received by the partner of a firm.
  18. Amount received from winning of the lottery, crossword puzzles, placards, and horse race. The term lottery 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. An amount received from employees for the contribution in the following finds. (Any fund established under employees' state insurance Act 1948. Any fund received for labor welfare. Provident fund or superannuation fund for employees.)
  20. Profits from the 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. The sum received under Keymen Insurance Policy. This sum also includes a bonus.
  24. Income shall include the profits and gains 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 the Income Tax Act.

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

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2011 Helna


wiseoldaccountant from Buffalo and Orchard Park NY on November 04, 2011:

Good Hub!

Please consider joining out team!

Scroll to Continue

BMG from timor laste on February 18, 2011:


Helna (author) on February 16, 2011:

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

BMG from timor laste on February 16, 2011:

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

Helna (author) on February 16, 2011:

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 from timor laste on February 15, 2011:

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

Related Articles