In order to tax the income of a person the term itself is designed under the Income Tax Act. As per the Act the term Income includes:
a. Profits and gains of Business or Profession: This includes income from carrying on a business or income earned by doing any profession.
c. Profit in lieu of Salary, perqusite: This includes any amount received by an employee from his employer other then the salary amount.
d. Allowances granted to the assesse to meet his expenses incurred for performance of his duties: This includes allowances such as HRA, Medical allowance, etc given by an employer to his employee.
e. Any capital gains: This means any profit dericed on sale of any capital asset.
f. Winning from lotteries, crossword puzzles, races, card game, T.V. Show , etc
g. Any sum received for fund created for welfare of employees.
One interesting thing in the defination of income is that it can be received in cash or in kind. More over the Income Tax Act does not make distinction between legal source of income or illegal source of income. This means that gambling, smugling income is also chargeable to tax under the Income Tax act. More over gifts of personal nature for eg. birthday/ marriage gifts are not treated as income (but there are some exceptions in this ).
In all tis one more thing is that the term income does not only means profits but there is a concept of negative income also.