An Introduction To Income Tax

Income should be in money or money worth- Any type of monetary receipt which is deserved from any source or sources of income is called income

. It is not necessary that the income is received in money. If it is received in kind or in the form of perquisites, it will be treated as income provided it can be measured in terms of money.

The sources of earnings should be definite- If any receipt is derived from some definite source of earnings, then it shall be treated as income, otherwise not. Receipt must be covered by any head of income to be considered as source of earnings otherwise it shall not be treated as a source of income.

Revenue should come from outside- Income must always come from outside nobody can receive revenue from himself. Thus excess of revenue over expenditures in a club in which the revenue comes through the subscription from members only cannot be considered as income of the club, because the excess is not the receipt from outside but it is from the club itself.

Regularity of profits is not essential- Generally the income is received monthly or in quarterly basis. But it is not necessary that the earnings should be received regularly. Amount received in one lump-sum may also be treated as income. For example receipt of gratuity there is no regularity in the earnings of lottery, gambling etc. but such receipts are taxable as income.

Returns becomes taxable on the basic of accumulation- If an assessee has earned a profits or has got a right to receive the revenue it would be treated his income, it does not matter that the assessee has received it or not till the end of the year. For ex. a private college paid salary of February and March-2011 to its employees in the month of April-2011. Thus the salary of February and March-2011 will be taxable as income of previous year 2010-11, but it is received by the employee in April 2011 i.e. in previous year of 2011-12.

Application of income is income while diversion of income is not income- If in any transaction an income is received by the assesses and after that he utilizes that income voluntarily in discharging an obligation, it is called application of income and it would be taxable in the hands of assessee. But in any transaction an income is received by a person for transferring it to some other person, then it is called the diversion of income and such amount shall not be treated as income of assessee.

by: Kevin Meaney

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