Income Taxable in Hands of Individuals and HUF

Understand Income Taxable in Hands of Individuals and HUF

Key rules to remember

Five heads of income

Salaries | House property | Profits and gains of business or profession | Capital gains | Income from other sources

Section 13 of the Income-tax Act, 2025. Every taxable income must fall under one of these.

Residuary nature of Other sources

Income not exempt and not under heads (a) to (d) → Income from other sources

Section 92(1). Check the other four heads first.

Gross total income

GTI = Salaries + House property + Business or profession + Capital gains + Other sources (after set-off of losses)

Deductions are then subtracted from GTI to reach total income.

Scope by residential status

ROR: India + foreign income | RNOR: Indian income + foreign income controlled from India | Non-resident: Indian income only

Indian income means received in India or accruing or arising (including deemed) in India. Use the section 5 rules for precise conditions.

Gifts without consideration (money)

Taxable if total received in the tax year from any person or persons exceeds ₹50,000; then the whole sum is taxable

Section 92(2)(m)(i). Exempt if from a relative, on marriage of the individual, under a will or inheritance, and the other cases in section 92(3).

Immovable property received for inadequate consideration

Taxable amount = stamp duty value − consideration, if the excess > higher of ₹50,000 or 10% of consideration

Section 92(2)(m)(ii)(B). Where received without consideration, the whole stamp duty value is taxed if it exceeds ₹50,000.

How to solve Income Taxable in Hands of Individuals and HUF questions

1. 1Determine the residential status of the assessee for the tax year. For a HUF, residential status depends on where the control and management of its affairs is situated; the Karta's residential status then decides whether it is ROR or RNOR.
2. 2List every item of income and mark where it is received, accrues or arises. Drop foreign income that is not taxable for the status.
3. 3Remove exempt incomes. These do not enter any head.
4. 4Classify each remaining item to a head. Test Salaries, House property, Business and Capital gains first. Put the rest, including section 92(2) items, under Other sources.
5. 5Compute each head separately under its own rules, with its own deductions. Show the working in a neat statement.
6. 6Apply set-off of losses within and between heads as the law allows. A house property loss and a business loss follow different rules.
7. 7Add the heads to get gross total income, then subtract eligible deductions to reach total income.
8. 8Round and compute tax only if the question asks for it, using the rates and rebate applicable to the assessee.

Quickest way: Table-and-tick method

Common mistakes in Income Taxable in Hands of Individuals and HUF

• Taxing foreign income of a non-resident or RNOR in full.

  Students forget to check residential status before looking at the item.

  Fix: Write the status at the top of the answer. Test every foreign item against it before including it.

• Putting interest on securities or dividend under business income by default.

  The assessee runs a business, so everything seems business income.

  Fix: Section 92(2) puts dividend under Other sources. Interest on securities goes there too, unless it is chargeable as business income.

• Taxing gifts from relatives or on marriage.

  Students remember the ₹50,000 limit but not the exceptions.

  Fix: Check section 92(3) first. Relatives, marriage of the individual, will or inheritance and the other listed cases are outside section 92(2)(m).

• Taxing only the excess over ₹50,000 on a gift of money.

  It is confused with a deduction or exemption limit.

  Fix: If the total exceeds ₹50,000, the whole sum is taxable. If it is ₹50,000 or less, nothing is taxable.

• Treating letting of a residential house as business income.

  The owner lets many properties and looks like a business.

  Fix: Section 26(4): income from letting a residential house or part of it by the owner is only House property income.

• Placing termination compensation under a head without checking section 92(2)(j).

  It comes from the employer, so it looks like salary.

  Fix: As per section 92(2)(j) of the supplied text, compensation or other payment in connection with termination of employment, or modification of its terms and conditions, is chargeable under Other sources. Cite that clause in your answer. Compensation for termination of management or agency of the kind in section 26(2)(b) is business income.

Worked examples