# Specific Inclusions in the Definition of "Income" [Section 2(24)]

The definition of income under Section 2(24) is inclusive, not exhaustive — Parliament has deliberately listed certain receipts so that they are taxed even though they might not look like "income" in the ordinary sense. Below are the key statutory inclusions you must remember.

## 1. Welfare-fund contributions collected from employees

Any sum an employer receives from its employees as their contribution to:

Provident Fund (PF)
Superannuation Fund
Employees' State Insurance (ESI)
Any other welfare/staff fund

is treated as the employer's income on receipt. (The employer can later claim a deduction only if it deposits the amount into the relevant fund by the due date — link this with the deduction provisions under PGBP.)

## 2. Keyman Insurance Policy proceeds

Amounts received under a keyman insurance policy, including any bonus allocated on such a policy, are income.

A keyman policy is a life insurance policy taken by a business on the life of a key employee/person connected to the business.
Because the premiums were a business deduction, the maturity/claim proceeds are brought to tax.

## 3. FMV of inventory converted into a capital asset

When a business converts stock-in-trade into a capital asset, the Fair Market Value (FMV) of that inventory on the date of conversion is income.

## 4. Forfeited advances on a failed capital-asset transfer [Sec 56(2)(ix)]

Any advance money received and forfeited because negotiations for transferring a capital asset failed is income, taxable under Income from Other Sources.

## 5. Receipts without / for inadequate consideration [Sec 56(2)(x)]

Any money or property received without consideration, or for inadequate consideration, is income (the "gift" taxation provision).

## 6. Employment-termination / modification payments [Sec 56(2)(xi)]

Compensation or any payment received on termination of employment or modification of the terms of employment is income.

## 7. Life Insurance Policy payments [Sec 56(2)(xiii)]

Sums received under a life insurance policy — other than ULIPs and keyman policies — to the extent they exceed the total premiums paid during the policy term, are income, provided those premiums were not claimed as deduction under any other provision.

## 8. Government assistance

Any assistance from the Central/State Government or any authority — by way of subsidy, grant, cash incentive, duty drawback, waiver, reimbursement — in cash or kind, is income.

Carve-out: A subsidy/grant that is adjusted in the actual cost of a depreciable asset is excluded (it reduces the cost on which depreciation is claimed instead of being taxed directly).

## Why this matters

In the exam, these inclusions are tested as (a) one-line MCQs ("Is X income?") and (b) computation adjustments. The trap is always the carve-out — e.g., a subsidy adjusted in the cost of an asset, or a life-insurance receipt where the premium was already deducted.

Worked example

### Example 1

Q. ABC Ltd. took a keyman insurance policy on the life of its Managing Director and paid premiums of ₹2,00,000 over the years (claimed as business deduction). On maturity it received ₹3,50,000 including bonus. How is the receipt taxed?

A. The entire ₹3,50,000 (claim + bonus) is income under Section 2(24) and chargeable to tax, because keyman insurance proceeds are specifically included. There is no exemption under Section 10(10D) for keyman policies.

### Example 2

Q. Mr. P agreed to sell his plot to Mr. Q and received ₹1,00,000 as advance. Negotiations failed and P forfeited the advance. Is it taxable?

A. Yes. A forfeited advance received in the course of negotiations for transfer of a capital asset is income under Section 56(2)(ix), taxable under Income from Other Sources in the year of forfeiture. (It is not reduced from the cost of acquisition any longer — that older treatment was withdrawn.)

### Example 3

Q. A manufacturer receives a ₹5,00,000 State subsidy that is adjusted against the cost of new plant. Is the subsidy taxable income?

A. No. Although government subsidies are generally income under Section 2(24), a subsidy taken into account in determining the actual cost of a depreciable asset is specifically excluded. It instead reduces the cost on which depreciation is computed.

⚠️ Common exam mistakes

Treating keyman insurance proceeds as exempt under Section 10(10D) — keyman policies are specifically excluded from that exemption and are fully taxable.
Forgetting that employees' PF/ESI contributions collected by the employer are the EMPLOYER's income on receipt (deduction is allowed only on timely deposit).
Taxing a government subsidy in full when it has actually been adjusted in the actual cost of a depreciable asset — that subsidy is excluded from income.
Taxing the entire life-insurance receipt instead of only the amount exceeding total premiums paid (for non-ULIP, non-keyman policies).

Bare-Act text Section 2(24) [read with Section 56(2)(ix), (x), (xi), (xiii)] · Income-tax Act, 1961 · click to expand

Section 2(24) defines "income" inclusively. Among the listed inclusions: sums received from employees as contributions to provident, superannuation, ESI or other welfare funds; any sum received under a keyman insurance policy including bonus; the fair market value of inventory converted into a capital asset; forfeited advance money on failure of negotiations for transfer of a capital asset [Sec 56(2)(ix)]; money or property received without or for inadequate consideration [Sec 56(2)(x)]; compensation on termination or modification of employment [Sec 56(2)(xi)]; sums under a life insurance policy (other than ULIP/keyman) exceeding aggregate premiums paid [Sec 56(2)(xiii)]; and assistance by way of subsidy, grant, cash incentive, duty drawback, waiver or reimbursement from Government or any authority (excluding subsidy adjusted in the actual cost of a depreciable asset).

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Inclusions in the Definition of Income [Section 2(24)]

Worked example

⚠️ Common exam mistakes