In our series of Articles on Tax Treatment of Income from Different Sources we earlier explained Provisions of Income From Salary , Income from House Property,Income From Business & Profession and Capital. These can be accessed at the following links :-
In this final article of the series we have discussed briefly Different Provisions Applicable to INCOME FROM OTHER SOURCES at one place.
Any income which is not chargeable to tax under any other heads of income and which is not to be excluded from the total income shall be chargeable to tax as residuary income under the head “Income from Other Sources”.
1 Basis of Charge [Sec. 56]:
Income chargeable to tax under the head “Income from other sources” shall include following:
Nature of income taxable as residuary income
Dividend received from domestic company shall be exempt from tax under Section 10(34) if it is chargeable to dividend distribution tax under Section 115-O. However, as per section 115BBDA (as inserted by Finance Act, 2016), in the case of resident individual/HUF/firm, dividend shall be chargeable to tax at the rate of 10% if aggregate amount of dividend received during the year exceeds Rs. 10,00,000.
Income by way of winnings from lotteries, crossword puzzles, races including horse races, card games, gambling or betting of any form or nature whatsoever
Any sum received by an employer from his employees as contribution towards PF/ESI/ Superannuation Fund etc., if same is not deposited in the relevant fund and it is not taxable under the head ‘Profits and Gains from Business or Profession’.
Interest on securities, if not taxable under the head ‘Profits and Gains of Business or Profession’
Income from machinery, plant or furniture belonging to taxpayer and let on hire, if income is not chargeable to tax under the head ‘Profits and Gains of Business or Profession’
Composite rental income from letting of plant, machinery or furniture with buildings, where such letting is inseparable and such income is not taxable under the head ‘Profits and Gains of Business or Profession’
Any sum received under Keyman Insurance Policy (including bonus), if not taxable under the head ‘Profits and Gains of Business or Profession’ or under the head ‘Salaries’
In the following cases, any sum of money or property received by an individual or HUF from any person (except from relatives or member of HUF or in given circumstances, see note 1) shall be taxable under the head ‘Income from other sources’:
a) If any sum is received without consideration in excess of Rs. 50,000 during the previous year, the whole amount shall be chargeable to tax;
b) If an immovable property is received without consideration and the stamp duty value exceeds Rs. 50,000, the stamp duty value of such property shall be chargeable to tax;
c) If immovable property is received for consideration which is less than the stamp duty value of property by an amount exceeding Rs. 50,000, the difference between the stamp duty value and the consideration is chargeable to tax;
d) If movable properties* is received without consideration and the aggregate fair market value of such properties exceeds Rs. 50,000, the whole of aggregate fair market value of such properties shall be chargeable to tax
e) If movable properties is received for consideration which is less than the aggregate fair market value of properties by an amount exceeding Rs. 50,000, the difference between the aggregate fair market value and the consideration is chargeable to tax.
If shares in a closely held company are received by a firm or another closely held company from any person without consideration or for inadequate consideration, the aggregate fair market value of such shares as reduced by the consideration paid, if any, shall be chargeable to tax.
Note: Nothing would be chargeable to tax if taxable amount doesn’t exceed Rs. 50,000.
If a closely held public company receives any consideration for issue of shares which exceed the fair market value of such shares, the aggregate consideration received for such shares as reduced by its fair market value shall be chargeable to tax.
Note: This provision is not applicable in the following cases:
a) Where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or venture capital fund.
b) Where the consideration for issue of shares is received by company from class or classes of person as notified by the Government.
Interest received on compensation or enhanced compensation
Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset shall be charged to tax under this head, if:
a) Such sum is forfeited; and
b) The negotiations do not result in transfer of such capital asset.
* ‘Movable property’ shall include shares, securities, jewellery, archaeological collection, drawings, paintings, sculptures, any work of art or bullion etc.
1.1 Gifts not chargeable to tax [Sec. 56(2)(vii)]
Any sum of money or property received by an individual or HUF in the following circumstances shall not be chargeable to tax:
a) Gifts received by an individual from his relatives;
b) Gifts received by an HUF from any of its Member;
c) Gifts received by an individual on occasion of his/her marriage;
d) Gifts received by an individual or HUF under a will or by way of Inheritance;
e) Gifts received in contemplation of death of the payer;
f) Gifts received from any local authority;
g) Gifts received from any fund, foundation, university, educational institution, hospital, medical institution, any trust or institution referred to in Section 10(23C);
h) Gifts received from any trust or institution registered under Section 12AA.
i) Share received as a consequences of demerger or amalgamation of a company under clause (vid) or clause (vii) of section 47, respectively.
j) Share received as a consequences of business reorganization of a co-operative bank under section 47(vicb)
** ‘Relative’ shall mean:
1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of spouse of the individual
7. Spouse of the person referred in point 2-6 above
2 Deductions [Sec. 57]:
The following expenditures are allowed as deductions from income chargeable to tax under the head ‘Income from Other Sources’:
Nature of Income
Dividend or Interest on securities
Any reasonable sum paid by way of commission or remuneration to banker or any other person for purpose of realizing dividend (other than dividends referred to in section 115-O) or interest on securities
Employee’s contribution towards Provident Fund, Superannuation Fund, ESI Fund or any other fund setup for the welfare of such employees
If employees’ contribution is credited to their account in relevant fund on or before the due date
Rental income letting of plant, machinery, furniture or building
Rent, rates, taxes, repairs, insurance and depreciation etc.
1/3rd of family pension subject to maximum of Rs. 15,000.
Any other income
Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income
Interest on compensation or enhanced compensation
50% of such interest (subject to certain conditions)
Income from activity of owning and maintaining race horses.
All expenditure relating to such activity.
5.3 Expenses not deductible [Section 58]:
Nature of Income
Interest chargeable to tax which is payable outside India on which tax has not been paid or deducted at source
‘Salaries’ payable outside India on which no tax is paid or deducted at source
Expenditure of the nature specified in section 40A
Expenditure in connection with winnings from lotteries, crossword puzzles, races, games, gambling or betting