“Income from Other Sources” is a significant category under the Income Tax Act that encompasses various forms of income not covered by other specific categories such as salary, house property, business or profession, or capital gains. These income sources, which don’t qualify for tax exemption, are subject to taxation under this head. In this analysis, we’ll delve into the concept of Income from Other Sources, provide examples, discuss allowable and disallowable expenses, and examine how such income is computed.
INCOME FROM OTHER SOURCES
Income which is not chargeable to tax under any of the heads of income specified in the Income Tax Act viz. “Salary”, “House Property”, “Business or Profession” and “Capital Gain” and which is also not exempt from tax under any section of the Income Tax Act, is chargeable to tax under this head.
SOME EXAMPLES OF INCOME FROM OTHER SOURCES U/S 56(2):
The receipts/incomes which are chargeable to tax under the head – Income from Other Sources include the following:—
(i) Interest on Bank Deposits, Loans or Company Deposits, Securities.
(ii) Income from letting out of Machinery, Plant or Furniture etc. and also building which is inseparable from such machines, plant or furniture (if it is not chargeable as income from business/profession).
(iii) Any sum received under Key-man Insurance Policy including Bonus, if not charged under the head “Business or Profession” or “Salary”.
(iv) Winning from Lotteries, Crossword Puzzles, Races including Horse Races, Card Games and Other Games of any sort or from Gambling or Betting of any form or nature etc.
(v) Any sum received by employer from his/her/its employees as contributions to any Provident fund or Superannuation fund or fund under ESI Act or any other fund for the welfare of such employees, but not deposited in the employee’s a/c by the due date of deposit if not charged under the head “Business or Profession”.
(vi) When a closely held company issues its shares at a price which is more than its fair market value, the amount received by the company in excess of fair market value.
(vii) Income by way of interest received on compensation or on enhanced compensation.
(viii) Any sum of money received by the transferor as an advance or otherwise in the course of negotiations for transfer of a capital asset which is not finally transferred and such advance is forfeited and the negotiations do not result in the transfer of such capital asset.
(ix) Any sum of money the aggregate value of which exceeds Rs. 50,000/- received from any person or persons without any consideration.
(x) Any immovable property received-
Without any consideration, the stamp duty value of which exceeds Rs. 50,000/- the whole stamp duty value of such property; or
Where the consideration paid is less than stamp duty value of such property, the difference between the stamp duty value and the consideration paid is treated as income of the receiver in case the difference exceeds the higher of the following two amounts-
(i) the amount of fifty thousand rupees; and
(ii) the amount equal to ten per cent of the consideration.
(xi) Any movable property –
Without any consideration, the fair market value of which exceeds Rs. 50,000/- the whole of fair market value of such property; or
Where the consideration paid is less than the fair market value of such property, and the difference between the fair market value and the consideration paid exceeds Rs. 50,000/- such difference is treated as income of the receiver.
However, the sum of money or any other property received from any of the following persons or in the following manner shall not be treated as an income from other sources.
a) From any relative (means Spouse/ Brother/ Sister/Brother or Sister of the Spouse/Brother or Sister of either of the Parents/Any Lineal Ascendant or Descendant/ Any Lineal Ascendant or Descendant of the Spouse and spouse of the above-mentioned persons/any member of HUF); or
b) On the occasion of marriage of the individual; or
c) Under a will or by way of inheritance; or
d) In contemplation of death of the payer/ donor; or
e) From any local authority [as per section 10(20)]; or
f) From any fund/ foundation/university/other educational institution/ hospital/medical institution/any trust, institution referred to in clause(23C) of section10; or
g)From any trust, institution registered u/s 12A/ 12AA/12AB; or
h) By way of transaction not regarded as transfer under section 47; or
i) From an individual by a trust created or established solely for the benefit of relative of the individual shall not be treated as an income from other sources; or
j) From any person by way of medical reimbursements for the expenses incurred for the treatment of any illness related to Covid-19;
Or
k) Ex-gratia received from the employer of the deceased or from any other person by a family member on account of death due to illness related to Covid-19.
(xii) Any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto.
(xiii) Family Pension (received by legal heirs of an employee).
(xiv) Income from sub-letting of house property by a tenant.
(xv) Agricultural income from agricultural land situated outside India.
(xvi) Interest received from Income Tax department on delayed refunds.
(xvii) Remuneration received by Members of Parliament.
(xviii) Casual Receipts and Receipts of non-recurring nature.
(xix) Income from Royalty, Insurance Commission if not charged under the head “Business or Profession”.
(xx) Examiner-ship Fees received by a teacher (not from employer).
(xxi) Director’s Commission for Standing as Guarantor to Bankers.
(xxii) Dividend.
(xxiii) Insurance maturity proceeds single premium insurance policies.
HOW IS INCOME FROM OTHER SOURCES COMPUTED?
Income from Other Sources is computed after deducting various expenses incurred by a person as mentioned in section 57 of Income Tax Act from income received and disallowing some specified type or nature of expenses as per section 58 of Income Tax Act which is discussed as follows:
Allowable expenses as per section 57 of I. T. Act, 1961 are —
|
Section |
Nature of Income | Deduction |
| 57(1) | 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 or interest on securities. |
| 57(ia) | 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. |
| 57(ii) | Rental income letting of plant, machinery, furniture or building | Rent, rates, taxes, repairs, insurance and depreciation etc. |
| 57(iia) | Family Pension | 1/3 of family pension subject to maximum of Rs. 15,000/-. |
| 57(iii) | Any income from other sources | Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income. |
| 57 (iv) | Interest on compensation or enhanced compensation | 50% of such interest (subject to certain conditions). |
| 58(4) | Income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever. | No deduction in respect of any expenditure or allowance (except in accordance with proviso to section 58(4) where the assessee is the owner of horses maintained by him for running in horse races). |
Disallowable expenses as per section 58 of Income Tax Act are –
(i) Any expenditure or a part of expenditure which is personal in nature.
(ii) Interest, Salary payable/paid outside India on which TDS is not made.
(iii) Any payment of direct taxes like Income Tax/Wealth Tax, excessive payments to relatives.
(iv) Expenditure in respect of Royalty and Technical Fees received by a Foreign Company.
(v) Expenditure in respect of Winning from Lottery, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever.
PROFITS CHARGEABLE TO TAX U/S 59 OF I.T. ACT, 1961
If any allowance or deduction has been made while computing income from other sources for any year in respect of any loss, expenditure or trading liability but subsequently or later on due to recovery of any amount in cash or any other manner or some benefit on account of remission or cessation of loss, expenditure or trading liability is derived, then the same shall be chargeable to tax under “Income from Other Sources” as applicable under the head “Profits and Gains of Business or Profession”.
(Republished with amendments)
A deposit was created by borrowing fund from a third party. The loan will be closed on maturity by the proceeds of the deposit with interest . Am I not eligible to deduct the interest paid/payable to the loan against interest on deposit received/receivable on deposit.
If invested on any Bond for five years and every year provision for interest receipt taken in other Income. On maturity of Bond what amount to show in other Income if maturity value received with interest of total five years after TDS deduction. How can the provision amount of previous four year which were taken as other income adjusted.
In case of an unregistered trust, where income is earned by way of dividends, interest, capital gains, if the trust pays the management fees of its funds or even salary to the person handling its affairs, whether such expenses are deductible trom the taxable income?
While the wife receives the award from the Insurance Company toward the Death of her husband in road accident, whether the award money will be taxable in her hand? or Is there any provision to avail deduction, please let me know?