Income tax is an annual tax on income. The Indian Income Tax Act (Section 4) provides that in respect of the total income of the previous year of every person, income tax shall be charged for the corresponding assessment year at the rates laid down by the Finance Act for that assessment year. Section 14 of the Income-tax Act further provides that for the purpose of charge of income tax and computation of total income all income shall be classified under the following heads of income:

Salary Income

Income from house property

Profits and gains of business or profession

Capital gains

Income from other sources.

The total income from all the above heads of income is calculated in accordance with the provisions of the Act as they stand on the first day of April of any assessment year.