Summary: The concept of “income” under the Income-tax Act, 2025 is foundational yet deliberately broad. Section 2(49) adopts an inclusive and elastic definition, ensuring that taxation keeps pace with evolving economic realities rather than being confined to a rigid list. Income broadly covers any monetary or non-monetary gain that increases a taxpayer’s wealth, unless expressly exempt. The Act specifically includes items such as salary, business profits, capital gains, dividends, export incentives, winnings from games or gambling, benefits or perquisites from business or profession, partner remuneration, non-compete receipts, government subsidies of revenue nature, and sums under Keyman insurance policies. A crucial distinction is maintained between income and capital receipts: income receipts are generally taxable, while capital receipts are taxed only when specifically brought within the Act. Courts have consistently interpreted income in its widest sense, focusing on real economic benefit rather than labels. While income is computed under five heads, this classification aids computation, not definition. Ultimately, substance prevails over form in determining taxable income.
What is “Income” under the Income-tax Act, 2025?
The concept of “income” lies at the very foundation of the Income-tax Act, 1961 under section 2(24) now Section 2(49) of Income Tax Act, 2025. Interestingly, the Act does not provide a precise or exhaustive definition of income. Instead, it adopts an inclusive and elastic approach, allowing the tax net to expand with evolving economic realities.
Statutory Definition
Section 2(49) of the Income-tax Act defines income in an inclusive manner. This means the definition does not restrict income only to what is listed but also covers receipts that carry the character of income in ordinary commercial sense.
In simple terms, income refers to any monetary or non-monetary gain that increases the taxpayer’s wealth, unless specifically exempted.
Items Included in “Income”
Section 2(49) specifically includes the following within the scope of income:
- Profits and gains from business or profession
- Dividend
- Salary, wages, bonus, commission, and perquisites
- Capital gains arising from transfer of capital assets
- Voluntary contributions to registered non-profit organizations, educational institutions, hospitals, etc.
- Export Incentives, such as profit on the sale of import licenses, cash assistance against export, duty drawbacks, duty remissions, and any other similar benefits.
- Winnings from lotteries, crossword puzzles, races (including horse races), card games, and other games, or from gambling/betting.
- Any sum received under a Keyman insurance policy, including allocated bonuses.
- The value of any benefit or perquisite arising from business or profession, whether convertible to money or not, in cash or in kind.
- Any interest, salary, bonus, commission, or remuneration received by a partner from a firm to the extent allowed as a deduction in computing the firm’s income.
- Any sum received under an agreement for not carrying out any activity in relation to a business or profession.
- Assistance or subsidy received from the government (unless capital in nature)
This inclusive list ensures that taxpayers cannot escape taxation merely because a particular receipt is not expressly mentioned.
Income vs Capital Receipt
A key principle in tax law is the distinction between income receipts and capital receipts:
- Income receipts are generally taxable unless exempt
- Capital receipts are not taxable unless specifically brought to tax (e.g., capital gains under Section 45)
For example, salary is an income receipt, while compensation for surrender of a capital asset may be a capital receipt.
Judicial Interpretation
Courts have consistently held that income should be interpreted in its widest sense. The Supreme Court has observed that income includes not only what comes in regularly but also what accrues, arises, or is deemed to accrue to the assessee.
The guiding test often applied is whether the receipt results in a real and measurable economic benefit to the taxpayer.
Heads of Income
For computation purposes, the Act classifies income under five heads:
1. Income from Salary
2. Income from House Property
3. Profits and Gains of Business or Profession
4. Capital Gains
5. Income from Other Sources
However, this classification is only for computation and chargeability, not for defining income itself.
Conclusion
The definition of income under the Income-tax Act, 2025 is deliberately broad and inclusive. By avoiding a rigid definition, the legislature has ensured that new forms of economic gains do not escape taxation. Ultimately, if a receipt adds to the taxpayer’s economic capacity and is not expressly exempt, it is likely to fall within the ambit of “income”.
In tax law, it is not the label of a receipt but its true character that determines whether it is income or not.
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Hritik Raina – LL.B. (Hons) University of Birmingham, LLM (International Taxation) King’s College London, Bridge Course (BCI)
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