What is Income?

What is Income?

In the previous post, we have a basic sentence to understand the Income and Income Tax. Focus on the word Income in the basic sentence below:

For each Tax Year, the government imposes Income Tax at a specified rate on every Person who has Taxable Income.

The discussion below will develop an understanding of the word Income.

In common sense, Income is what a person earns, or make after paying all the expenses from the gross receipts. Technically, it has different meaning for Income Tax purposes. Income Tax Ordinance, 2001 defines Income[See 1 below] as under:

Income includes any amount chargeable to tax, any amount subject to collection or deduction of tax, any amount treated as income, and any loss of income. However,it does not include the amount representing the face value of any Bonus share or the amount of any Bonus by the company to the shareholders to increase capital.

Thus, the following amounts are income:

(1) Any amount chargeable to tax;

(2) Any amount subject to collection or deduction of tax;

(3) Any amount treated as income; and

(4) Any loss of income.

Keeping in view the other definition, following are income:

(1) The value of import is income because the collector of customs deducts Income Tax from it under the Income Tax Ordinance, 2001;

(2) Prizes and winnings are income because Income Tax is deducted at source from them; and

(3) Advanced tax paid by the owners of vehicles also falls in the definition of Income.

The law does not ignore the possibility of loss, and has included loss in the definition of Income.

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[1]See Section 2(29) of the Income Tax Ordinance 2001; simplified version of the definition