Under sections 2 and 3 of the Income Tax Act, 1961, definitions of important te used in

the Act have been given, some of which are as under :

INCOME (Sec. 2(24)]
Tncome' is one of the important terms of the Income Tax Act as income tax is charged onthe
income of a person. This term has not been defined in the Income Tax Act, except that it states
towhat is included in income.
Under this section income includes :
(i) profits and gains;
i1) dividend:
(iü) voluntary contributions received by (a) a trust created for charitable or religious
purposes, or (b) by a scientific research association, or (c) by a games or sports
association or institution, or (d) any university or other educational institution, or
(e) any hospital or other institution, or () an electoral trust;
iv) the value of any perquisite or profits in lieu of salary taxable under the head 'salaries;
() any special allowance or benefit specifically granted to the assessee to meet his
expenses wholly, necessarily and exclusively for the performance of his duties:
(vi) 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 Allowance;
(vi) the value of any benefit or perquisite which is obtained by any representative assessee;
(vii) any sum chargeable to income tax under the head business' or profession';
(ix) any capital gains;
(x) the profits and gains of any business of insurance carried on by a mutual insurance
ompany or by a co-operative society;
 INCOME TAX (UNTAODUCTION AND IMPCORTANT DEFINITIONS)
(xi) any winnings from lotterics, crossword puzzles, races including horse races, card-games
and other games of any sort or from gamblíng or betting of any form or nature whatsever;
Eaplanation :
(a) Lottery' incudes winnings from prizes awarded to any person by draw of lots or by
chance or in any other manner whatsoever;
(b) "Card game and other game of any sort" includes any game show, an entertainment
programme on television or electronic mode, in which people compete to win prizeB
or any other similar game;
(xii) any sum received by the assessee from his employees as contribution to any provident
fund or superannuation fund or any fund set-up under the Employees' State Insurance
Act or any other fund for the welfare of such emnployees;
(xiii) any sum received under a Keyman Insurance Policy including the sum received by
way of bonus on such policy.
Keyman insurance policy means a life insurance policy taken by a person on the life
of another person who is or was (a) an employee of the first person, or (b)connected
in any manner with the business.
The sum of keyman 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 profit in lieu of
salary.
(©) When the amount is received bya person, where an employer-employee relationship
does not subsist (Chairman or Director ete. of acompany), it is assessable under the
head income from other sources.
(aiv) by
theaprofits and gains of any business of banking (Gncluding credit facilities) carried on
co-operative society with its members;
(xv) any consideration received for issuing shares as exceeds the fair market value of the shares.
(xvi) any sum of money received as an advance in the course of negotiations for the transfer
of a capital asset and such negotiation fails, the amount so forfeited;
(xvii) if the assessee receives (in cash or kind) the following from the Central Government or
the State Government or any authority or 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 deter
mination of the actual cost of the asset, it will not be treated as income.
The subsidy or grant by the Central Government for the purpose of the corpus of a
trust or institution established by the Central Government or the State Government,
will not be treated as income.
The LPG subsidy and other welfare subsidies received by individuals shall not be
included in income.
(xvii) 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 (For
details see chapter 12),
(xix) Compensation or other payment, due or received by any person in connection with the
termination of hisemployment or modification ofthe terms and conditions relating thereto,
(xx) 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 8ome other receipts also which
are ordinarily treated as income. In fact, income means a monetary income which is derived
from definite sources with some sort of regularity or expected regularity. These definite sources
 10 INCOME TAX

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 or illegally, is taxable under the Income Tax Act. The
Income Tax Act does not make any distinction between legal and llegal income. However, any
expenditure incurred to earn an illegal income is allowed to bededucted out of such íncome only.
(3) It is not necessary that the income should be received regularly and periodically, say,
weekly, monthly or quarterly. Lump-sum receipts can also be income, provided it ís income in
view of other factor8 and considerations.
(4) Income should be received from outside. In an institution, if the income from subscription
from its members exceeds its expenditureon its members the excess cannot be treated as taxable
income, because the subscription was received from amongst the members themselves and the
excess represents the excess of income over expenditure incurred for their own benefit or
well-being, hence this 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.
[CIT V8.Bankipur Club Ltd. (1997) 226 1TR 97 (SC)
(5)It is not essential that the income must be received in the form of money. Receipts in
kindor service having money equivalent can also be income.
(8) 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 : 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 a person, then to the
extent of such charge it will be deducted from his income.
V10) Receipt on account of dharmada,gaushala, eto. is not income.
(11) Pin Money received by wife for her personal expenses and small savings made by a
woman out of money received from her husband for meeting household expenses is not her
income.
(12) Disputed Income :Any dispute regarding the title of income willnot 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. the application of income : Diversion of income means that the
income is diverted to some other person under some legal obligation. Ifafter receiving the income
it is given to someone else it is the application of income. Similarly, if an income is diverted to
some other person voluntarily, it is an application of income. Where by an obligation, income is
diverted before it reaches the assessee, it is diversion of income and not taxable; but where 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'.
GROSS TOTAL INCOME (Sec. 80B(5))
The aggregate of the income under the following heads is known as gross total income:
(1) Income from salaries;
(ii) Income from house property;
(ii) Profit and gains of business or profession;
(iv) Capital gains; and
(v) Income from other
 INOOME TAX (INTRODUCTION AND IMPORTANT DEFINITIONS) 11

under that head.

he inome under each head is computed after making deductions permissible
Furtber.the brought forward losses shall be deducted (as provided in the Act) to arrive at
the sssesseble income.
TOTAL INCOME (Sec. 2(45)
80Cto 80U
Tetal income means the amount left after making thedeductions under sections
Sm tbe grosstotal income.
Theamount so arrived is rounded off to the nearest multiple of ten rupees,
Difference between Gross Total Income and Total Income
Gross Tbtal Income TotalIncome
urnder sections 80C to 80U. the
1 Asgregate of various heads of income is called After deductions
Gross Total Income. balance is called Total Income.
2 Gross Total Income is not rounded off. Total Income is rounded off to the nearest multi
ple of ten rupees.
3. Tax is not levied on Gross Total Income. |Tax is levied on the Total Income at the
prescribed rates.
be egual to GTI or less than GI.