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Computation of taxable income is one of the fundamental aspects of taxation, and it plays a vital role in UGC NET Commerce and Management syllabus. Understanding how income is classified and computed under various heads as per the Income Tax Act, 1961, is essential for both examination purposes and practical applications.

The Income Tax Act divides income into five major heads. Each head has specific rules for inclusion, deductions, and computation. After computing income under each head, the aggregate is known as Gross Total Income (GTI), from which deductions under Chapter VI-A are allowed to arrive at the Net Taxable Income.

1. Income from Salaries
This head covers earnings received by an individual from an employer-employee relationship. It includes basic salary, allowances, perquisites, commissions, and retirement benefits. The taxable income is computed by adding salary components and reducing exemptions such as house rent allowance (HRA), leave travel concession (LTC), and standard deduction.

2. Income from House Property
Income from house property arises when an individual owns property that is let out or deemed to be let out. Self-occupied property is treated separately with specific provisions. Computation involves calculating Gross Annual Value (GAV), reducing municipal taxes, and then applying deductions such as standard deduction at 30 percent of Net Annual Value and interest on borrowed capital.

3. Profits and Gains of Business or Profession
This head includes income from any trade, profession, or vocation. Computation requires considering business receipts and reducing allowable expenses like rent, depreciation, salaries, and administrative costs. Disallowed expenses such as personal expenditure or penalties cannot be deducted. For professionals, presumptive taxation schemes may also apply.

4. Capital Gains
Capital gains arise from the transfer of capital assets such as land, buildings, shares, or securities. They are classified into short-term and long-term based on the holding period. Short-term gains are taxed at normal slab rates, whereas long-term gains are taxed at special rates with indexation benefits in certain cases. Exemptions are available under sections like 54, 54EC, and 54F if the gains are reinvested.

5. Income from Other Sources
This is a residual head that includes income not falling under other heads, such as interest on securities, dividends, winnings from lotteries, or gifts. Computation is done by including gross receipts and deducting expenses incurred to earn that income, wherever permissible.

Aggregation and Set-Off
After computation under each head, incomes are aggregated to form Gross Total Income. Provisions for set-off and carry forward of losses apply, allowing losses under certain heads to be adjusted against incomes under others. For example, business loss can be set off against any head except salary, and capital losses can only be set off against capital gains.

Deductions under Chapter VI-A
Once GTI is computed, deductions under sections 80C to 80U are allowed. These include investments in provident fund, life insurance premium, tuition fees, medical insurance premium, donations, and interest on savings.

Taxable Income
Finally, Net Taxable Income is computed after deducting these amounts. The tax liability is then calculated based on applicable slab rates for individuals, HUFs, firms, or companies.

A clear understanding of the computation process under each head not only helps in solving UGC NET questions but also builds a strong foundation for practical tax planning and compliance.

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