Section 13 — Heads of Income

Section 13 — HEADS OF INCOME

Section 13 is the classifier provision for the entire computation framework. It enumerates the five Heads of Income under which all chargeable income must be classified for computation of total income. Each Head has its own dedicated computation chapter (Part B-F of Chapter IV) — Salaries (ss. 15-19), House Property (ss. 20-25), PGBP (ss. 26-66), Capital Gains (ss. 67-91), Other Sources (ss. 92-95).

BLOCK 1 — VERBATIM TEXT OF SECTION 13 (drawn from official PDF)

Marginal note — Heads of income

Save as otherwise provided in this Act, all incomes shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:—

(a) Salaries;

(b) Income from house property;

(c) Profits and gains of business or profession;

(d) Capital gains; and

(e) Income from other sources. Income not forming part of total income and expenditure in relation to such income.

BLOCK 2 — 1961 ACT COUNTERPART (Section 14)

Section 13 of the 2025 Act preserves the five-Head classification in 1961 s. 14 (with letter-relabelling — A through E in 2025 vs A, C, D, E, F in 1961 post-1988 omission of B). The substantive scope and inter-Head exclusivity rules are unchanged.

BLOCK 3 — COMMENTARY

STATUTORY ARCHITECTURE

Section 13 is the classifier; the actual computation follows in ss. 15-95. The classification is mandatory — every item of income must be classified under exactly ONE Head, with mutual-exclusivity preserved. If an income falls within a specific-charging Head, it cannot be re-classified into the residuary Other Sources Head merely because that yields a tax-favourable result. The 'best fit' classification is determined by the income's intrinsic character — employment yields salary; ownership yields property income; business activity yields PGBP; capital-asset transfer yields capital gains; everything else falls into Other Sources.

JUDICIAL EVOLUTION — Mutual Exclusivity

CIT v. Bokaro Steel Ltd., (1999) 236 ITR 315 (SC) — held that interest income earned by a company on bank deposits during pre-commencement period is NOT 'income from other sources' but goes to reduce the cost of the capital assets being constructed; capital-receipt characterisation overrides residuary-Head classification.

HELD: If receipts cannot fairly be brought under any of the heads s. 15-55 of the 1961 Act [now ss. 15-95 of 2025 Act], then s. 56 [now s. 92] applies. But before pushing receipts into the residuary head, the AO must establish that they do not naturally fit under any other head. (per Bokaro Steel ¶ 8).

JUDICIAL EVOLUTION — 'Save as Otherwise Provided'

The opening words 'Save as otherwise provided in this Act' acknowledge that certain types of income are CHARGED under specific provisions (notably s. 199-211 — special rates for VDA / lottery / unexplained / online gaming) outside the head-classification framework. For these, the Head classification is overridden by the special-rate regime.

JUDICIAL EVOLUTION — Income Once Classified Cannot Be Reclassified

CIT v. Cocanada Radhaswami Bank Ltd., (1965) 57 ITR 306 (SC) — held that once income is classified under a Head, the entire computation framework of THAT Head applies. The Department cannot adopt one Head's character for charge and another's for computation/deduction.

DEPARTMENTAL PRACTICE

ITR Forms (ITR-1 through ITR-7) require Schedule-wise reporting under each of the 5 Heads. Mis-classification (e.g., business income reported as salary or capital gains) is a recurring scrutiny ground; the AO may re-classify and adjust applicable deductions / set-offs. CBDT Circulars on classification — e.g., Circular No. 4/2007 dated 15-06-2007 (treatment of income from sale of shares — capital gains vs. business income), Circular No. 6/2016 dated 29-02-2016 (clarification on stock-in-trade classification).

PLANNING NOTES & LITIGATION DEFENCE

(i) For each material item of income, document the Head classification rationale — board minute / CA opinion / engagement letter referencing the income's intrinsic character. (ii) For pre-commencement interest of a company, cite Bokaro Steel for capital characterisation (not Other Sources). (iii) For shares-trading vs. investment dichotomy, follow CBDT Circular 6/2016 + assessee's consistent treatment in books — once classified as 'investment', cannot be re-classified as 'stock-in-trade' merely because gains were higher. (iv) For derivatives (futures / options), business income (PGBP) classification is mandatory under s. 43(5) speculation-carve-out — cannot be classified as Capital Gains. (v) Practitioners advising HUF / family-business clients should ensure consistent Head classification across years; any change attracts AO scrutiny.

CROSS-REFERENCES

• Section 14 — Income not forming part of total income (next section in Part A).
• Sections 15-19 — Salaries (Part B).
• Sections 20-25 — Income from House Property (Part C).
• Sections 26-66 — Profits and Gains of Business or Profession (Part D).
• Sections 67-91 — Capital Gains (Part E).
• Sections 92-95 — Income from Other Sources (Part F).
• Sections 199-211 — Special tax rate regimes (override Head classification for charge).