Income [Section 2(24)] Income Tax

Definition of Income

The definition of income as per the Income-tax Act, 1961 begins with the words “Income includes”. Therefore, it is an inclusive definition and not an exhaustive one. Such a definition does not confine the scope of income but leaves room for more inclusions within the ambit of the term.

Section 2(24) of the Act gives a statutory definition of income. At present, the following items of re- ceipts are specifically included in income:—

(a)  Profits and gains.

(b)  Dividends.

(c)  Voluntary contributions received by a trust/ institution created wholly or partly for charitable or religious purposes or by an association or institution referred to in section 10(21) or by a fund or institution referred to in section 10(23C)(iiiad)/(iiiae)/(iv)/(v)/(vi)/(via) or an electoral trust. 


(d)  The value of any perquisite or profit in lieu of salary taxable under section 17(2) and (3), respectively.

(e)  Any special allowance or benefit, other than the perquisite included above, specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit.

(f)  Any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living.

(g)  The value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid.

(h)  The value of any benefit or perquisite, whether convertible into money or not, which is obtained by any representative assessee mentioned under section 160(1)(iii) and (iv), or by any beneficiary or any amount paid by the representative assessee for the benefit of the beneficiary which the beneficiary would have ordinarily been required to pay.

(i)  Deemed profits chargeable to tax under section 41 or section 59.

(j)  Profits and gains of business or profession chargeable to tax under section 28.

(k)  Any capital gains chargeable under section 45.

(l)  The profits and gains of any insurance business carried on by Mutual Insurance Company or by a cooperative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of the provisions contained in the first Schedule to the Act.

(m)  The profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members.

(n)  Any winnings from lotteries, cross-word puzzles, races including horse races, card games and other games of any sort or from gambling, or betting of any form or nature whatsoever. For this purpose,

  1. “Lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
  2. “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 prizes or any other similar game.

(o)  Any sum received by the assessee from his employeesas contributions to any provident fund (PF) or superannuation fund or Employees State Insurance Fund (ESI) or any other fund for the welfare of such employees.

(p)  Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy will constitute income.

“Keyman insurance policy” means a life insurance policy taken by a person on the life of another person where the latter is or was an employee or is or was connected in any manner whatsoever with the former’s business. It also includes such policy which has been assigned to a person with or without any consideration, at any time during the term of the policy.

(q)  Any sum referred to in section 28(va). Thus, any sum, whether received or receivable in cash or kind, under an agreement for not carrying out any activity in relation to any business or profession; or not sharing any know-how, patent, copy right, trade-mark, licence, franchise, or any other business or commercial right of a similar nature, or information or technique likely to assist in the manufacture or processing of goods or provision of services, shall be chargeable to income tax under the head “profits and gains of business or profession”.

(r)  Fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset, determined in the prescribed manner [Section 28(iva)].

(s)  Any consideration received for issue of shares as exceeds the fair market value of the shares [Section 56(2)(viib)].

(t)  Any sum of money received as advance, if such sum is forfeited consequent to failure of negotiation for transfer of a capital asset [Section 56(2)(ix)].

(u)  Any sum of money or value of property received without consideration or for inadequate consideration by any person [Section 56(2)(x)].

(v)  Any compensation or other payment, due to or received by any person, by whatever named called, in connection with termination of his employment or the modification of the term and conditions relating thereto [Section 56(2)(xi)].

[For details, refer to Chapter 8 “Income from Other Sources”]

(w)  Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement, by whatever name called, by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee is included in the definition of income.

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