Income from Business or Profession
Any income derived by a person from business or profession is liable to Income Tax under the head of “Income from Business or Profession.” Under this head of income, all the incomes of a person arising to him while carrying on his business or profession are included. Thus, income from any type of business either wholesale business or a retail business or business by way of commission agency, would be taxed under the head of “Income from Business or Profession.” Similarly, income derived by running a factory or workshop or any other type of business activity would be treated as income arising from profits and gains of a business or profession.
From the gross amount of money earned by a person while carrying on his business or profession he can claim deduction in respect of all legitimate expenses incurred by him for carrying on the said business or profession or vocation. Thus, from the gross income earned by a person he gets a deduction for expenses incurred by him while carrying on the business or profession. Such expenses would be in the nature of office expenses or expenses incurred on manufacturing of the product or it could be travelling expenditure. It could also be any other type of expenditure incurred by a person incidental to income from profits and gains of business or profession. Generally speaking, there is no upper limit of deductibility of various expenditures, which are allowed as a deduction while computing net taxable income under the head “Income from profits and gain from business or profession”.
However, illegal business expenditure although actually incurred by the assessee is not allowed as a deduction from the business income. Similarly, the expenditure incurred by way of capital expenditure is also not allowed as a deduction. In respect of the capital expenditure incurred by a person carrying on business or profession, like the capital expenditure in the form of purchase of building or purchase of plant and machinery, he gets deduction by the way of depreciation for use of the asset for business purposes. However, depreciation on land is not available. The rates at which deduction for depreciation is permissible on various items of assets used for business or profession are all contained in a Schedule of depreciation rates. The depreciation is permissible at the full rate in case the asset is put to use for more than six months in a year.
Similarly, depreciation is permissible only at half the normal permissible rate where the asset is used for business or profession for less than 180 days. Whatever be the type of tax entity carrying on business or profession, the general theme is that income derived from profits and gains of business or profession would be subjected to income tax payment after deducting all legitimate expenses that are allowed as deduction.

Capital Gain
When a person sells some of his capital assets and derives any profit by selling such capital assets the resultant gain amount is treated as income from capital gains. Under the Income Tax Act, capital gains are of two types, namely, the long-term and the short-term. The discretion between long-term capital gain and short-term capital gain is really very important from the point of view of taxation of such capital gains. Under the Income Tax Act, if any, immovable property either land or building or apartment or godown is sold by a person after holding it for more than 36 months, then the resultant profit arising on sale of asset will be treated as long-term capital gain. The situation would be similar in case an assessee sells jewellery, gold and diamond ornaments, after retaining it for more than 36 months. The profit so gained will be treated as a long-term capital gain. The time period for long-term capital gains in respect of shares, mutual fund units, securities and bonds is 12 months, only as against 36 months for other assets. Thus, any shares or debentures or units sold by an assessee after holding them for a minimum period of 12 months, and the resultant profit arising thereon would be treated as long-term capital gain. The importance of having the knowledge of short-term and long-term capital gain is that while short-term capital gain is subjected to income tax by adding such capital gain amount with all other income of the assessee, in respect of long-term capital gains the Income Tax Act provides for taxing the same at reduced tax rate of just 20%.
Besides the concept of Cost Inflation Index is also available for long-term capital gains, which helps in the process of reducing tax liability of the assessee. It is further provided in the Income Tax Act that a special rate of 10% income tax would be applicable for long-term capital gains arising on selling shares, debentures, units and bonds, which are quoted in the stock exchange. Thus, on selling shares and debentures that are listed in the stock exchange there is just 10% income tax liability on the taxpayer.
However, those who are interested to enjoy the said 10% tax liability only in respect of capital gain on selling shares, would not be permitted a separate tax benefit in the form of Cost Inflation Index. By selling a capital asset there could be a loss or a profit.
The Income Tax Act provides for a very liberal adjustment and set-off of capital loss against the capital gain so arrived at by a taxpayer.
It is very pertinent to note that the capital loss is not adjustable against any other income of the assessee for the year.

Income from other sources
Finally, the last head of income is “Income from other sources,” which is very important, as it would take care of any other type of income that is not covered under the preceding heads of income. Thus, any income derived by the assessee which is not subjected to income-tax either under the head ‘salary income,’ ‘property income,’ ‘business income’ or ‘capital gains’ would be subjected to income from other sources. Generally speaking, the items that would be covered and included for tax purposes under the head “income from other sources” would be interest income either from private parties or interest income from bank. Similarly, income arising by way of dividend income, sub-letting of property, monthly income plan amount, income from mutual funds and income from various schemes of the post office would all be treated as income from other sources. The gross income from other sources is subject to tax payment. Under sections 14A and 56 of the Income Tax Act, 1961 any expenditure in earning the income from other sources will be allowed as deduction to the assessee deriving income from other sources.
To conclude, we can say that while you are ready to adopt tax planning for yourself and your family it would be worthwhile to study in detail the various provisions of Income Tax Act, whereby computation is made of different types of income from different sources of the taxpayer. The various deductions, wherever permissible, are allowed under various heads of income and only the net amount is subjected to income tax. Generally speaking, the loss in one head of income is freely allowed adjustment with profit under the same head of income. However, there is an exception whereby the loss on long-term capital asset is adjusted only against the long-term capital gains. You should file your income tax return only after computing your income under different heads of income.