Understanding the 5 Heads of Income Tax in India

Taxes might seem complicated, but they do not have to be. In India, income tax is categorised into five distinct heads of income. These categories help simplify taxation and make it easier to declare earnings. Whether you are a salaried professional, a business owner, or an investor, understanding these categories can help you plan your taxes better and even save money.

Let’s dive into the 5 heads of income tax and see how they affect your financial planning.

1. Income from salary

If you are working for an employer, your monthly pay check falls under this head. It includes:

• Basic salary
• Allowances (like HRA, transport allowance)
• Perquisites (company car, rent-free accommodation)
• Bonuses

Taxability: Tax is calculated based on the gross salary minus exemptions like House Rent Allowance (HRA) and standard deduction (Rs. 50,000 annually).

Pro tip: You can save more by maximising your deductions. For instance, if you are paying rent and do not receive HRA, you can still claim deductions under Section 80GG. Now, if you have taken a home loan, the interest paid on the loan can help reduce your taxable income under the section for house property (more on that later).

2. Income from house and property

This head includes any earnings you get from the property, whether it is rented out or your second home. Even a self-occupied property can fall under this category, with specific rules for deductions.

Taxability: Income from house property is calculated as: Net Annual Value (NAV) = Gross Annual Value (GAV) - Municipal taxes paid

You can claim deductions under:

• Standard deduction: 30% of NAV
• Interest on home loan: Up to Rs. 2,00,000 annually for self-occupied property

Pro tip: Investing in property not only grows your wealth but also offers tax-saving opportunities. Homebuyers with a home loan can enjoy significant savings by claiming both principal (under Section 80C) and interest deductions.

3. Income from business or profession

Are you a freelancer, consultant, or business owner? This category is for you. Income earned from your trade, profession, or business is covered here.

Taxability: Business owners are taxed on their profits after deducting expenses like rent, salaries, and utilities. Professionals (like doctors or chartered accountants) can also deduct expenses related to their work, such as equipment or office rent.

Pro tip: Keep meticulous records of expenses to maximise your deductions and reduce tax liability. If you run your business from a home office and have a home loan, you might be able to allocate a portion of the interest as a business expense.

4. Income from capital gains

This head applies when you earn profits from selling assets like property, stocks, or mutual funds. Capital gains can be:

• Short-term: Gains from assets held for a short period (like stocks held for less than a year).
• Long-term: Gains from assets held for longer periods.

Taxability: Short-term gains are taxed as per your income tax slab. Long-term gains have a lower tax rate (for example, 10% or 20%, depending on the asset).

Pro tip: Reinvesting in specific assets like residential property can help you claim exemptions under Sections 54 and 54F. If you are reinvesting in property, a Bajaj Housing Finance Home Loan can make it easier to afford a dream home while saving on taxes.

5. Income from other sources

Anything that does not fit into the other four categories lands here. Common examples include:

• Interest from savings accounts, fixed deposits, or bonds
• Dividends
• Gifts exceeding Rs. 50,000 from non-relatives
• Earnings from lotteries or game shows

Taxability: Interest and dividends are taxed as per your income slab. Certain exemptions may apply to savings account interest (up to Rs. 10,000 under Section 80TTA).

Pro tip: Make sure you disclose all earnings to avoid penalties during tax assessments.

Smart tax planning with a home loan

Tax planning is not just about saving money—it is about smart investments. A home loan can reduce your taxable income while helping you achieve the dream of owning a house.

Here is how:

• Principal deduction: Under Section 80C, claim up to ₹1.5 lakh annually.
• Interest deduction: Under Section 24(b), claim up to ₹2 lakh annually.
• Additional benefits: First-time homebuyers can claim an extra deduction of Rs. 1.5 lakh under Section 80EEA.

Why choose Bajaj Housing Finance Home Loan?

At Bajaj Housing Finance, we make owning a home simple and affordable. With competitive interest rates, flexible repayment terms, and minimal paperwork, you can take the first step toward financial freedom.

Here are a few key benefits of choosing Bajaj Housing Finance Home Loan:

1. High loan amount: Secure funding up to Rs. 15 crore* to turn your dream home into reality.

2. Low interest rates: Enjoy interest rates starting 8.25%* p.a, and EMIs as low as Rs. 741/lakh*.

3. Quick approval: Get approved within 48 Hours* of applying – sometimes even sooner.

4. Flexible repayment tenure: Choose a repayment term of up to 32 years for comfortable EMIs.

5. Simple application: Take advantage of doorstep document collection for a smooth process.

6. Balance transfer facility: Move your existing home loan and get a top-up loan with better terms.

Plus, a home loan does not just help you buy a house—it is also a powerful tool for tax savings. Whether you are planning to buy your first home or invest in a second property, a Bajaj Housing Finance Home Loan is here to support you every step of the way.

Ready to get started? Apply now and make the most of your tax benefits today!