Unit 4.2 Income Tax
Unit 4.2 Income Tax
The important point to note here is that salary is taxable on due basis or received basis whichever
is earlier. Let me explain this with the help of an example. If you receive salary for the month of
march 2020 in April 2020, it will still be taxable in previous year 2019-20. This is because it was
due in march. Similarly if your employer has given you salary of April and May in advance in the
month of March, then it will be taxable again in the month of march itself.
Therefore, salary income will be taxable on due basis or received basis whichever is earlier.
However, if the property is utilized for letting out the normal course of business, then the income
from the rent will be considered.
Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset,
which was held as an investment.
Capital asset can be real estate, stocks, Mutual funds, Bonds, Gold etc.
So whenever you sell a capital asset and earn gains. This is considered as your income which will
be taxable under the head Capital Gain.
Just to clarify, please note that rental income from property is taxed under “Income from house
Property” but if you sell the property and experience gain, it will be taxed under “capital gain”.
Some of the examples can be interest income from bank deposits, lottery awards, card games,
gambling or other sports awards are included in this category.
These incomes are attributed in the Section 56(2) of the Income Tax Act and are chargeable for
income tax.
Whatever income assesses earns is being classified under the five heads under
Income Tax Act for the purpose of collection of Taxes. For the purpose of Set off or
Carry Forward and Set off of the losses (losses other than Dead Losses) under the
five heads also the provisions are made keeping in mind the heads of income.
1. Losses from speculative business cannot be set off against income from non-
speculative business. But Losses from non-speculative business can be set off with
income from speculative business.
2. Long Term Capital Loss cannot be set off with Short Term Capital Gain.
3. No Loss can be Set off with any casual income i.e. Income from lotteries, crossword
puzzles, race including horse race, card game, and any other game of any sort or
from gambling or betting of any form or nature.
4. Losses from the business of owning and maintaining race horses cannot be set off
against any income other than income from the business of owning and maintaining
race horses.
5. Losses from the business specified under Section 35AD (Specified Business)
cannot be set off against Incomes other than income from business specified under
Section 35AD. But Losses from Non-Specified Business can be set off against
Income of Specified Business.
2. Inter Head Adjustment
Inter Head means setting off the loss of one head with income of other head. Example:
Setting off the loss under the head PGBP with the Income under the head Capital
Gains. Under the Income tax Act all kind of Inter head adjustments are allowed except
the following cases:
1. Losses from speculative business cannot be set off against income under any other
head.
2. Losses under the head PGBP cannot be set off against Salary Income.
3. Losses under the head Capital Gain cannot be set off against any other head. But
Losses under any other head can be set off with Income under the head Capital
Gain.
4. NO loss can be set off against casual incomes.
5. Losses from the business of owning and maintaining race horses cannot be set off
against any other head.
6. Loss from the business specified under section 35AD cannot be set off against any
other head of income.