Section 13 · Computation of total income
Section 13 of the Income-tax Act, 2025 — Heads of Income (Business & Profession Focus)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 13, Income-tax Act 2025
13. 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.
14. (1) Irrespective of anything to the contrary contained in this Act, for the
purposes of computing the total income under this Chapter, no deduction shall
be allowed in respect of expenditure incurred by the assessee in relation to income
which does not form part of the total income.
(2) Where the Assessing Officer, having regard to the accounts of the assessee, is
not satisfied with—
(a) the correctness of the claim of expenditure incurred by the assessee; or
(b) the claim made by the assessee that no expenditure has been incurred,
in relation to income which does not form part of the total income under this Act,
he shall determine such amount of expenditure in accordance with any method,
as may be prescribed.
(3) Irrespective of anything to the contrary contained in this Act, the provisions of
this section shall apply in a case where any expenditure has been incurred during
any tax year in relation to income which does not form part of the total income
under this Act, but such income has not accrued or arisen or has not been received
during that tax year.
B.—Salaries
Salaries.
In plain language
What Section 13 says
Section 13 of the Income-tax Act, 2025 is the foundational classification rule. It states that all income, for the purpose of charging income-tax and computing your total income, must be classified under five heads of income. It is the direct successor to Section 14 of the Income-tax Act, 1961 — the wording has been simplified but the concept is unchanged.
The five heads under Section 13, in clause order, are:
- (a) Salaries — dealt with in detail in Sections 15 to 19 of the 2025 Act.
- (b) Income from house property — Sections 20 to 25.
- (c) Profits and gains of business or profession — Sections 26 to 66 (this is the head most relevant to businesses, professionals and freelancers).
- (d) Capital gains — Sections 67 to 91.
- (e) Income from other sources — Sections 92 to 95 (the residual head).
Why the "heads" matter
You cannot compute tax on a lump-sum figure. Section 13 forces every rupee of income to be slotted into exactly one head. This matters because each head has its own rules for what counts as income, what deductions you can claim, and how the figure is computed. For example, a salaried person gets the standard deduction under the salary head, while a business owner deducts rent, salaries paid, depreciation and other business expenses under the business head. The head decides the arithmetic.
Who Section 13 applies to
It applies to every assessee — individuals, Hindu Undivided Families (HUFs), firms, LLPs, companies, and others. If you run a shop, practise as a CA/doctor/lawyer, freelance, or trade goods, your income falls under head (c) — Profits and gains of business or profession. Even a salaried person who also does consulting on the side will have two heads: salary (a) and business/profession (c).
The business & profession head (clause c) in practice
- Business covers trade, commerce, manufacture, or any adventure in the nature of trade.
- Profession covers vocations requiring specialised skill — CAs, doctors, lawyers, architects, engineers, consultants, and increasingly, content creators and freelancers.
- You are taxed on net profit (gross receipts minus allowable business expenses and depreciation), not gross turnover.
- Small taxpayers can opt for presumptive taxation (the 2025 Act equivalents of the old Sections 44AD/44ADA), declaring a fixed percentage of turnover as profit without maintaining detailed books.
How Section 13 interacts with other sections
Section 13 is a gateway provision — it names the heads but contains no computation rules itself. It works together with:
- The charging section (which levies the tax) and the total income provisions that aggregate the five heads.
- The set-off and carry-forward rules — a business loss can be adjusted against other heads (with limits), and unabsorbed business loss/depreciation can be carried forward.
- Head-specific computation sections (26–66 for business) that define income, expenses and depreciation.
Practical implications
- Correct head = correct deductions. Misclassifying business income as "other sources" can cost you legitimate expense deductions.
- Rental income is usually "house property," not business — even if you own many flats — unless letting is genuinely a business activity.
- Interest, dividends and one-off receipts that fit no other head fall into "other sources" (clause e), so nothing escapes tax.
💡 Example
Worked example 1 — a freelancer with two heads. Riya earns a salary of ₹9,00,000 as a designer and also freelances, earning gross receipts of ₹4,00,000 with ₹1,00,000 of genuine expenses (software, internet, laptop depreciation). Under Section 13, her income splits into two heads: Salaries (a) = ₹9,00,000 and Profits and gains of business or profession (c) = ₹4,00,000 − ₹1,00,000 = ₹3,00,000 net. Her total income before deductions is ₹12,00,000. If she had wrongly declared the freelance money as "other sources," she may have lost the ₹1,00,000 expense deduction.
Worked example 2 — a shopkeeper. Suresh runs a retail store with turnover ₹80,00,000 and net profit ₹6,50,000 after all expenses and depreciation. His entire income sits under head (c), business or profession. If he instead opts for presumptive taxation and his declared profit rate is higher than his actual profit, he could pay more — so the head and the scheme chosen directly affect his tax.
A short story. When Anjali first filed as a tuition teacher, she lumped her ₹5,00,000 fees under "income from other sources" because it felt simpler. Her CA pointed out that tuition is a profession under clause (c) of Section 13, which let her deduct rent for her study room, books and travel — reducing her taxable income by nearly ₹90,000. The lesson: Section 13 is not just a formality; picking the right head puts real money back in your pocket.
| Head of income (Section 13) | Clause | 2025 Act sections | 1961 Act equivalent | Typical income |
|---|
| Salaries | (a) | 15–19 | 15–17 | Salary, bonus, taxable perquisites |
| Income from house property | (b) | 20–25 | 22–27 | Rent from owned property |
| Profits and gains of business or profession | (c) | 26–66 | 28–44 | Business, trade, freelancing, professions |
| Capital gains | (d) | 67–91 | 45–55A | Sale of shares, property, assets |
| Income from other sources | (e) | 92–95 | 56–59 | Interest, dividends, residual income |
Related sections
Section 14 — How business income is computed (charging framework) Section 26 — Profits and gains of business or profession (scope) Section 15 — Income chargeable under Salaries Section 20 — Income from house property Section 67 — Capital gains Section 92 — Income from other sources
Frequently asked questions
What does Section 13 of the Income-tax Act, 2025 deal with?
It lists the five heads of income under which all income must be classified for charging tax and computing total income: Salaries, House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources. It is the successor to Section 14 of the 1961 Act.
Which head does business or freelance income fall under?
It falls under clause (c), Profits and gains of business or profession, which is dealt with in detail in Sections 26 to 66 of the 2025 Act. You are taxed on net profit after allowable expenses and depreciation, not on gross receipts.
Is Section 13 of the 2025 Act the same as Section 14 of the 1961 Act?
Yes. Section 13 of the Income-tax Act, 2025 corresponds to Section 14 of the Income-tax Act, 1961. The five heads are identical; only the section number and drafting language have changed.
Can my income fall under more than one head?
Yes. For example, a salaried person who also freelances will have income under both Salaries (a) and Business/Profession (c). Each head is computed separately and then aggregated into total income.
Why can't rental income simply be treated as business income?
Rent from property you own is generally taxed under Income from House Property (clause b), even if you own several properties, unless letting is genuinely carried on as a business. The head is decided by the nature of the income, not by your preference.
Does Section 13 itself tell me how much tax to pay?
No. Section 13 only classifies income into heads. The actual computation rules, deductions and tax rates are contained in the head-specific sections and the charging provisions, which work together with Section 13.
What is the 'Income from other sources' head for?
It is the residual head (clause e), covering income that does not fit the other four heads, such as interest, dividends and casual receipts. Its purpose is to ensure no taxable income escapes tax merely because it is hard to classify.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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