Income tax is the tax levied on income. The tax payer has to pay on what he gets or he earns or he receives. It is not necessary that every receipt be treated as income. In this connection income is divided into two categories.
Revenue receipt And Capital receipt.
It is first essential to distinguish these two concepts. Let us see how
You get Source of Income
Salary from Services
Rent from Property
Profit from Business
Interest from Loans
Royalty from Knowledge
For every revenue receipt there exists a source of income. That source of income may be tangible asset or intangible assets. 'Similarly rent are generated by letting out a house property (source of income), and therefore same can be said for, salary, interest etc. All these receipts have source of income.
Receipts for which there does not exist a source of income is a, capital receipt. i.e. receipts arising by sale of source of income can be said to be capital receipt. E.g. sale of trees along with its roots or sale of property they are all termed as capital receipt.
Whereas every capital receipt is not taxable unless otherwise expressly taxable. Certain capital receipts which are not taxable but have been made taxable. e.g. Sale of capital asset being capital receipt but still chargeable to tax u/s 45 Similarly gifts received from father etc. is treated as capital receipt, therefore not taxable. Generally any expenditure incurred in earning income is allowed as deduction. i.e. revenue expenditure is allowed as deduction from revenue receipts if such revenue expenditure is incurred in earning such revenue receipts.