The Five Heads of Income —
How Your Income Is Classified
Every rupee you earn falls under one of five heads. Here is what each head covers, the governing sections, the deductions allowed, how losses set off and how it all rolls up into your Gross Total Income.
Under the Income-tax Act, 2025 (Chapter IV) — in force from 1 April 2026 — all income of a person is classified under five heads: (1) Salaries, (2) Income from House Property, (3) Profits & Gains of Business or Profession (PGBP), (4) Capital Gains and (5) Income from Other Sources. Each head is computed separately; the total, after set-off of losses, is your Gross Total Income (GTI). GTI minus Chapter VI-A deductions gives the Total Income on which tax is charged.
The Income-tax Act, 2025 replaces the 1961 Act from 1 April 2026 (Tax Year 2026-27). The five heads are unchanged, but section numbers have been renumbered. Everyday references such as "Section 80C" or "Section 24(b)" still appear in CBDT circulars and ITR forms transitionally — always confirm the exact provision in the new Act.
The Five Heads of Income — Reference Table
Every source of income maps to exactly one head, each with its own charging sections, inclusions and deductions.
| Head | Sections | Key inclusions | Key deductions |
|---|---|---|---|
| Salaries | 15–17 | Basic, DA, allowances, perquisites, pension, bonus, leave encashment | Standard deduction Rs 75,000; professional tax (old); HRA/LTA exemptions (old only) |
| House Property | 22–27 | Rent from let-out property; deemed rent on 3rd+ property | 30% standard deduction u/s 24(a); home-loan interest u/s 24(b) |
| Business / Profession | 28–44 | Business profits, professional fees, speculative income, benefits | Business expenses (30–37); depreciation u/s 32; presumptive 44AD/44ADA |
| Capital Gains | 45–55 | Sale of property, shares, MFs, gold, bonds; STCG & LTCG | Cost of acquisition/improvement; 54/54F/54EC exemptions |
| Other Sources | 56–59 | FD/savings interest, dividends, winnings, gifts, family pension | Expenditure to earn income u/s 57; nil for lottery/gambling |
Section numbers follow the familiar 1961-Act numbering used in current CBDT/ITR references; the Income-tax Act, 2025 renumbers them in Chapter IV.
Not sure which head your income belongs to?
Ask a TaxClue expert →What Each Head Actually Covers
1. Salaries (Sec 15–17)
Taxable only where an employer-employee relationship exists. Salary is charged on due or receipt basis, whichever is earlier, and includes perquisites and profits in lieu of salary. All salaried taxpayers and pensioners get a standard deduction of Rs 75,000 in the new regime (Rs 50,000 in the old). Exemptions like HRA and LTA apply only under the old regime.
2. Income from House Property (Sec 22–27)
Rental income from a building/land is taxed here. A self-occupied property has a nil annual value. From Net Annual Value you get a flat 30% standard deduction u/s 24(a) and home-loan interest u/s 24(b) — capped at Rs 2,00,000 for a self-occupied house (old regime), with the full interest allowed for a let-out property. Set-off of house-property loss against other heads is limited to Rs 2,00,000 a year. See our house property income guide.
3. Profits & Gains of Business or Profession (Sec 28–44)
Covers proprietors, partners, professionals and companies. Deductions include rent, repairs, depreciation u/s 32 (block-of-assets, WDV) and general business expenditure u/s 37. Small taxpayers can use presumptive taxation: 44AD (6%/8% of turnover up to Rs 3 crore where cash receipts are ≤5%) and 44ADA (50% of gross receipts up to Rs 75 lakh for eligible professionals). Tax audit u/s 44AB applies above the prescribed thresholds.
4. Capital Gains (Sec 45–55)
Profit on transfer of a capital asset, split into short-term and long-term by holding period. Under the regime effective 23 July 2024: listed-equity STCG at 20% (Sec 111A) and LTCG at 12.5% over Rs 1.25 lakh (Sec 112A); other assets LTCG at 12.5% without indexation (property acquired before 23 Jul 2024 may opt for 20% with indexation). Exemptions under 54/54F/54EC and the CGAS deposit route can reduce the tax.
5. Income from Other Sources (Sec 56–59)
The residual head — anything not covered above. Includes interest, dividends, family pension, and gifts above Rs 50,000 from non-relatives. Lottery, betting and card-game winnings are taxed at a flat 30% with no deduction. Crypto/VDA gains are taxed separately at a flat 30% u/s 115BBH with 1% TDS u/s 194S and no loss set-off. Agricultural income is exempt u/s 10(1) but is aggregated for rate purposes.
The new regime is the default and offers lower slabs plus the Section 87A rebate up to Rs 12 lakh taxable income, but it disallows almost all Chapter VI-A deductions and exemptions (HRA, LTA, 80C). Head-wise reliefs such as the Rs 2 lakh home-loan interest on a self-occupied house apply only if you opt for the old regime.
Set-Off & Carry-Forward of Losses
Losses under one head can, within limits, be set off against income of another head in the same year (inter-head), after first setting off within the same head (intra-head).
| Loss under | Set off against | Carry forward |
|---|---|---|
| House property | Any head — capped at Rs 2,00,000/yr against other heads | 8 years |
| Business (non-speculative) | Any head except Salaries | 8 years |
| Speculative business | Speculative profits only | 4 years |
| Short-term capital loss | STCG or LTCG | 8 years |
| Long-term capital loss | LTCG only | 8 years |
| Unabsorbed depreciation | Any head | Indefinite |
Capital losses can never be set off against non-capital-gains income. Crypto/VDA losses cannot be set off at all.
House-property loss set-off
Balance carried forward
Have losses to carry forward across heads? File on time to preserve them.
Get ITR Filing Help →Gross Total Income vs Total Income
Gross Total Income (GTI) is the sum of income under all five heads after intra-head and inter-head set-offs. Total Income (taxable income) is GTI minus Chapter VI-A deductions (80C, 80D, 80G, etc.). Tax is charged on Total Income at slab or special rates.
Under the new regime most Chapter VI-A deductions are unavailable (except employer NPS u/s 80CCD(2)), so GTI and Total Income are often the same. Compare regimes with our old vs new regime calculator and check the applicable income-tax slabs.
A non-resident is taxed only on India-source income across these heads; the Section 87A rebate is not available to NRIs. Double taxation is relieved under a DTAA via the exemption or tax-credit method (Form 67 and a Tax Residency Certificate). TDS on many NRI payments is deducted u/s 195.
Heads of Income — Frequently Asked Questions
Related TaxClue Services
Next in this income-tax cluster
Classify Every Head — and File It Right
Salary, house property, business, capital gains or other sources — our CA-led team computes each head, applies set-offs and deductions, compares old vs new regime and files your ITR accurately, 100% online across India.