What Is Income?
Income is money or an equivalent value received by an individual or business against the sale of products or services and investment of capital. We can also refer income as “earnings”.
The definition of income may be different for individuals and businesses. For individuals mostly income receives from salary or compensations and for business income is referred as revenue after deducting expenses and taxes.
Most of the income types come under taxation.
As per Indian income tax, all sources of income are largely divided under five Heads.
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Income from salary / Pension: Includes basic salary, perquisites, allowance, profits-in-lieu of salary, Pension earned by retired individuals.
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Income from Business/ Profession: Includes income received from sales of products or services as well as professional fees.
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Income from House property: Income received from renting a house.
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Income from Capital Gain: Includes income received from sales of any capital assets. Land and building sales also included here.
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Income from Other Sources: All income not covered under the above heads are covered in this head of income.
Types of Income.
A. Taxable and Tax exempted Income
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Taxable: Income earned by individual and business are generally categorized into 5 heads and taxed accordingly.
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Tax Exempted Income: Few sources of income are not being taxed. Like agricultural income is exempt from taxes under Section 10 of the Income Tax Act.”
B. Gross Income and Net Income
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Gross Income: Gross income is the total income received from all sources like salary, business, property, and investments before deducting any tax or expenses.
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Net Income: Net income is income received from all sources like salary, business, property, and investments after deducting all expenses and taxes.
C. Fixed Income and Variable Income
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Fixed Income: This is generally a recurring type of income. Where you received a specific amount of money after specific intervals like hourly, weekly, monthly, etc. salary or wages are fixed in nature. Example: Mr. Raj working in a private company and receiving a salary of Rs. 50,000/- per month which is fixed for every month.
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Variable Income: Type of income which not fixed in nature which is fluctuating. Like business income may vary depending upon sales and circumstances. Example: Mr. Raj also receives an annual bonus every quarter depending upon his performance. Last quarter it was Rs. 80,000/- and this quarter it was Rs. 30,000/-
D. Disposable Income and Discretionary income
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Disposable Income: Money remaining after paying taxes is disposable income. Disposable income is generally spent on necessities like daily house expenses, transportation, food, EMIs, etc.
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Discretionary Income: Money remain after paying all expenses is known as discretionary income. Discretionary income is mostly spent on wants like luxury, vacations, hoteling, etc. Disposable income is generally higher than discretionary income as expenses on need can’t be reduced
So, any inflow of money is considered as income, and income defines the nature of expenses and investments.