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easyTax Consultant interview question

Explain the heads of income under Indian income tax with an example for each.

What the interviewer wants to hear

  • Names all five heads
  • Salaries example
  • House property example
  • Business or profession and capital gains examples
  • Other sources as residual head

Model answer

Indian income tax groups income under five heads, and each has its own rules. Salaries cover pay from an employer, including basic pay, allowances and perquisites, with some exemptions and a standard deduction. Income from house property covers rent from a building or flat owned by the taxpayer, computed from annual value after municipal taxes, a 30% standard deduction and home loan interest. Profits and gains of business or profession cover a shop, a factory or a freelancer’s fees, computed from business income less allowable expenses and depreciation. Capital gains arise on selling capital assets like shares, mutual funds or land, split into short-term and long-term with different rates. Income from other sources is the residual head, covering items like savings and deposit interest, dividends, and certain gifts. The income under all heads is added, losses are set off as allowed, and deductions are then claimed to reach total income.

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