Chargeability under income tax refers to the income that is subject to income tax. In India, the Income Tax Act, 1961, provides for the chargeability of income under five heads:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

All income earned by a taxpayer in India during a financial year is chargeable to income tax under the relevant head. However, there are certain exemptions and deductions that may be available to the taxpayer, which can reduce the taxable income.

The basis of chargeability of income under different heads is as follows:

• Income from salary:Salary is chargeable to tax on either a due basis or a receipt basis, whichever is earlier.
• Income from house property:Income from house property is chargeable to tax on an accrual basis.
• Income from business or profession:Income from business or profession is chargeable to tax on an accrual basis.
• Income from capital gains:Capital gains are chargeable to tax in the year in which they arise.
• Income from other sources:Income from other sources is chargeable to tax on an accrual basis.

Once the taxable income has been determined, the taxpayer is required to pay income tax at the applicable rates. The income tax rates vary depending on the taxpayer’s income and residential status.

Here are some examples of income that is chargeable to income tax in India:

• Salary
• Bonus
• Commission
• Leave encashment
• Perquisites
• Rent from property
• Profits from business or profession
• Capital gains from the sale of assets
• Interest income
• Dividend income
• Lottery winnings
• Gifts

EXAMPLE

• Z is a resident of Delhi and has a business in Mumbai. He is liable to pay income tax to the state of Maharashtra on the income from his business in Mumbai, even though he is not a resident of Maharashtra.
• W is a resident of Chennai and has a property in Bangalore. She is liable to pay income tax to the state of Karnataka on the income from her property in Bangalore, even though she is not a resident of Karnataka.

FAQ QUESTIONS

What is chargeability under income tax?

Chargeability under income tax refers to the liability of a person to pay income tax on their income. It is determined by the following factors:

• Residential status :The taxpayer’s residential status determines which income is taxable in India. Resident taxpayers are taxable on their global income, while non-resident taxpayers are only taxable on their Indian income.
• Heads of income :The Income Tax Act, 1961 divides income into five heads: salary, house property, business or profession, capital gains, and income from other sources. Each head of income has its own rules for chargeability.
• Exemptions and deductions :The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income.

Q: What types of income are chargeable to income tax in India?

A: All types of income are chargeable to income tax in India, except for income that is specifically exempted under the Income Tax Act. Some examples of exempt income include agricultural income, income from provident funds, and income from life insurance policies.

Q: What is the difference between resident and non-resident taxpayers?

A: A resident taxpayer is a person who is resident in India for more than 182 days in a financial year. A non-resident taxpayer is a person who is not resident in India for more than 182 days in a financial year.

Q: Which income is taxable in India for resident taxpayers?

A: Resident taxpayers are taxable on their global income. This includes income earned from India and from outside India.

Q: Which income is taxable in India for non-resident taxpayers?

A: Non-resident taxpayers are only taxable on their Indian income. This includes income earned from India, such as salary, house property rent, and business or professional income.

Q: What are the heads of income under the Income Tax Act?

A: The Income Tax Act, 1961 divides income into five heads:

1. Salary:Salary includes all types of remuneration received for services rendered, such as basic pay, dearness allowance, house rent allowance, and bonus.
2. House property :House property income includes the rent received from letting out a property, as well as the income from any other use of a property for commercial purposes.
3. Business or profession :Business or profession income includes the profits earned from carrying on a business or profession.
4. Capital gains :Capital gains are the profits earned from the sale of a capital asset, such as a house, land, or shares.
5. Income from other sources :Income from other sources includes all types of income that do not fall under any of the other four heads of income. This includes income from interest, dividend, and lottery winnings.

Q: What are some of the exemptions and deductions available under the Income Tax Act?

A: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income. Some examples of exemptions include:

• Basic exemption limit: Resident taxpayers are entitled to a basic exemption limit of Rs.2.5 lakh for the financial year 2023-24. This means that the first Rs.2.5 lakh of a taxpayer’s income is exempt from tax.
• House rent allowance (HRA): Resident taxpayers who receive HRA from their employer are entitled to a deduction for HRA paid. The amount of deduction is limited to the least of the following:
  • Actual HRA received
  • 50% of salary (40% in the case of metropolitan cities)
  • Excess of rent paid over 10% of salary
• Leave travel allowance (LTA): Resident taxpayers are entitled to a deduction for LTA expenses incurred for travel to and from their hometown and any other place in India for leisure purposes. The amount of deduction is limited to the actual LTA received from the employer.
• Medical expenses: Resident taxpayers are entitled to a deduction for medical expenses incurred for themselves, their spouse, dependent children, and parents. The amount of deduction is limited to Rs.1 lakh for senior citizens (above the age of 60 years) and Rs.50,000 for other taxpayers.

Q: How do I know if my income is chargeable to income tax?

A: To determine if your income is chargeable to income tax, you need to consider your residential status, the heads of income under which your income falls, and the exemptions and deductions available to you. If you are unsure, you should consult a tax professional.

CASE LAWS

CIT v. Dunlop India Ltd (1962) 45 ITR 107 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is received or accrues, depending on the system of accounting followed by the assess. The Court further held that the mere receipt of money does not necessarily mean that it is income. If the money is received on behalf of another person, or if it is subject to a condition, then it will not be taxable income until the condition is fulfilled.

ACIT v. Keshav Mills Co. Ltd (1965) 56 ITR 12 (SC)

In this case, the Supreme Court held that the concept of chargeability under income tax is different from the concept of receipt or accrual of income. Chargeability arises when the income becomes taxable under the provisions of the Income Tax Act, 1961 (the Act). The Court further held that the income may become taxable even though it has not been received or accrued.

CIT v. B.K. Modi (1988) 173 ITR 460 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the assess has a legal right to receive the income, even though the income may not have actually been received. The Court further held that the income is taxable even if it is subject to a contingency.

CIT v. Reliance Industries Ltd (2005) 277 ITR 574 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is derived from a source in India. The Court further held that the income is taxable even if it is not remitted to India.

CIT v. Vodafone International Holdings B.V. (2012) 342 ITR 1 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is attributable to a permanent establishment (PE) in India. The Court further held that the income is taxable even if the assesses does not have a physical presence in India.