Incomes which are charged to tax under the head ‘Income from other sources’
‘Income from other sources’ is the residual head of income. Hence, any income which is not specifically taxed under any other head of income will be taxed under this head.
Further, there are certain incomes which are always taxed under this head. These incomes are as follows:
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Income chargeable to tax under the head “Income from other sources” is to be computed in accordance with the method of accounting regularly employed by the assessee. Hence, if the assessee follows mercantile system, then income will be computed on accrual basis. If assessee follows cash system, then income will be computed on cash basis. However, method of accounting does not affect the basis of charge in case of dividend income and income by way of interest received on compensation or on enhanced compensation.
Illustration
Ascertain the head of taxability of the incomes given below:
Nature of income | Head of taxability |
Dividend of Rs. 10,84,000 received by Mr. Kapoor from an Indian company. | Dividend is always charged to tax under the head “Income from other sources”. However, dividends from domestic company are exempt from tax upto Rs 10 Lacs only. Any amount received more than 10 lacs tax at 10%.
Hence Rs 84,000 will be tax at 10%. |
Dividend of Rs. 1,84,000 received by Mr. Sunil from a foreign company. | Dividend is always charged to tax under the head “Income from other sources”. Dividends from foreign company do not qualify for exemption under section 10(34) and, hence, will be fully charged to tax. |
Rs. 25,200 won by Mr. Soham from a game show. | Income by way of winnings from lotteries, crossword puzzles, races including horse races, card game and other game of any sort, gambling or betting of any form whatsoever, are always charged to tax under the head “Income from other sources”. Hence, Rs. 25,200 won from a game show will be charged to tax under the head “Income from other sources”. |
Rs. 84,000 received by Mr. Kumar
from his friend on his birthday.
|
Gifts received by an individual or HUF (which are charged to tax) are taxed under the head “Income from other sources”. In this case, gift is received from a friend and it exceeds Rs. 50,000. Hence, entire amount will be charged to tax under the head “Income from other sources”. |
Rent of a plot of land of Rs. 20,000 received by Mr. Jagdish. | Rent from plot of land will be charged to tax under the head “Income from other sources”. Rent of plot of land is not charged to tax under the head “Income from house property” |
Rent of a shop amounting to Rs. 1,00,000 per month received by Mr. Sohil. | Rent of shop (being building) is charged to tax under the head “Income from house property”. |
Interest of Rs. 50,000 from bank fixed deposits received by a salaried employee. | Interest on bank fixed deposits is charged to tax under the head “Income from other sources”. |
Gifts received by Individual & HUF
56(2)(x) is applicable only when gifts are received by Individual and HUF. Donor or Donee may be Resident or non Resident.
If aggregate value is less than Rs.50000 than nothing will be taxable. If value exceeds Rs. 50,000, the whole amount will be taxable.
Illustration
During the year 2019-20, Mr. Kumar received following gifts. Ascertain the total amount of gift charged to tax.
Answer:
Considering above, the tax treatment of various items in the hands of Mr. Kumar will be as follows :
Considering above discussion, the total amount of gift not covered in any of the specified exemptions will come to Rs. 55,200 (i.e., Rs. 25,200 + Rs. 30,000). If the gift not covered in specified exemptions exceeds Rs. 50,000 then the entire amount of such gift is charged to tax. Hence, taxable amount of gift will come to Rs. 55,200.
Where any person receives, in any previous year, from any person or persons any property other than immovable property without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property will be taxable in the hands of receiver.
Illustration
From the following information provided by Mr. Kapoor, ascertain the tax treatment of various items.
Answer:
Considering the above provisions, the tax treatment of various items in the hands of Mr. Kapoor will be as follows :
Considering above discussion, the total amount of gift not covered in any of the specified exemptions will come to Rs. 30,000. If the gift not covered in specified exemptions does not exceed Rs. 50,000 then nothing is charged to tax. In this case, the amount of gift not covered in the exemptions comes to Rs. 30,000 (which is less than Rs. 50,000), hence, nothing will be charged to tax.
Where any person receives, in any previous year, from any person or persons any property other than immovable property for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration.
The excess differential amount will be taxable in the hands of receiver.
Illustration
During the year 2019-20, Mr. Kamal a salaried employee purchased the following items:
Answer:
Considering above provisions, the tax treatment of various items received by Mr. Kamal will be as follows:
3. Immovable Property as Gift:
Where any person receives, in any previous year, from any person or persons any immovable property without consideration and the stamp duty value of which exceeds fifty thousand rupees then in such case, the stamp duty value of such property will be taxable in the hands of receiver.
Illustration :
On 25-2-2020, Mr. Kaushal gifted his personal building to his friend Mr. Lala. The market value of the building was Rs. 18,40,000 and the value of the building adopted by the Stamp Valuation Authority for charging stamp duty was Rs. 19,00,000. What will be the tax implications of the above items in the hands of Mr. Kaushal?
Answer:
There is no question of taxing the value of building in the hands of Mr. Kaushal since he has gifted the same to his friend. In other words, the question of taxability of gift arises when gift is received by an individual/HUF and not when the gift is given by the individual/HUF. However, in this case the taxability will arise in the hands of the receiver, i.e., his friend and Rs. 19,00,000 (i.e., the value adopted to charge stamp duty) will be taxed in the hands of his friend since he has received the building without any consideration.
Where any person receives, in any previous year, from any person or persons any immovable property for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts:
(i) the amount of fifty thousand rupees; and
(ii) the amount equal to five per cent of the consideration
The excess differential amount will be taxable in the hands of receiver.
Illustration :
On 25-2-2020, Mr. Kaushal purchased a building from his friend for Rs. 8,40,000. The value of the building adopted by the Stamp Valuation Authority for charging stamp duty is Rs. 18,40,000. What will be the tax implications of the above transition in the hands of Mr. Kaushal?
Answer:
Difference between stamp value and consideration is Rs 10,00,000 which exceeds higher of below (i.e., Rs 50,000):
a. The exemption threshold of Rs 50,000; and
b. 5 percent of 8,40,000 i.e., Rs 42,000.
Hence the taxable value would be Rs 10,00,000.
If any gifts are received in following situations or from below mentioned people then those gifts will be fully exempt under Income Tax.
Any sum of money or any property received:
Note: In the above-mentioned points the term Relatives means
– Spouse of Individual
– Brother & Sister of Individual
– Brother & Sister of Spouse of Individual
– Brother & Sister of either of the parents of Individual
– Any Lineal ascendants or descendants of the individual
-Any Lineal ascendants or descendants of the spouse of the individual.
Below is a comprehensive list of Donors as per definition of relative under I.Tax Act ( Hindi connotation has also been mentioned)
List of Male Donors | List of Female Donors |
Father (Papa or Pitaji) | Mother (Maa or Mummy) |
Brother (Bhai) | Sister (Bahin) |
Son (Beta or Putra) | Daughter (Beti or Putri) |
Grand Son (Pota or Potra) | Grand Daughter (Poti or Potri) |
Husband (Pati) | Wife (Patni) |
Sister’s Husband (Jija) | Brother’s Wife (Bhabhi) |
Wife’s Brother (Sala) | Wife’s Sister (Sali) |
Husband’s Brother (Dewar) | Husband’s Sister (Nanad) |
Mother’s Brother (Mama) | Mother’s Sister (Mausi) |
Mother’s Sister Husband (Mausa) | Wife’s brother’s wife (Sala Heli) |
Father’s Brother (Chacha or Tau) | Father’s Brother’s Wife (Chachi or Tai) |
Father’s Sister’s Husband(Fufa) | Father’s Sister (Bua) |
Grand Father (Dada, Pardada) | Grand Mother (Dadi, Pardadi) |
Daughter’s Husband (Jawai) | Son’s Wife (Bahu or Putra Vadhu) |
Spouse Father (Sasur) | Spouse Mother (Sas) |
Spouse Grand Father (Dada Sasur) | Spouse Grand Mother (DadiSas) |
Brother’s Wife (Bhabhi) | Mother’s Brother’s Wife (Mami) Husband’s Brother’s Wife (Devrani or Jithani) |
Any amount received under a life insurance policy, including bonus is exempt from tax under section 10(10D). However, following points should be noted in this regard:
Illustration
Mr. Kumar had taken following life insurance policies.
Advice him regarding the tax treatment of amount to be received from above policies.
**
Following major deductions are available from income chargeable to tax under the head “Income from other sources” :
(a) Commission or remuneration for realising dividends (if not covered under section 115-O which is exempt) or interest on securities [Section 57(i)].
(b) Any sum received by an employer from employees as contribution towards any welfare fund of such employees is first included as income of the employee, and if the employer credits such sum to the employee’s account under the relevant fund on or before the due date (of such fund), then such amount (i.e., employee’s contribution) is deductible from the income of the employer [Section 57(ia)].
(c) Current (not capital) repairs, insurance premium and depreciation in respect of plant, machinery, furniture and buildings are deductible from rent income earned by letting out of plant, machinery, furniture and building, which are chargeable to tax under section 56(2)(ii)/(iii).
(d) A deduction of lower of Rs. 15,000 or 33 1/3% of such income is available in case of income in the nature of family pension (i.e., regular monthly amount payable by the employer to the family members of the deceased employee) [Section 57(iia)].
(e) Under section 57(iii), deduction is available in respect of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income during the relevant previous year.
Under section 58, following expenditures are not deductible while computing income chargeable to tax under the head “Income from other sources” :
(Republished with Amendments by Team Taxguru)
Q. No. 3
Calculate income from other sources from the information given below:
O Winnings from lottery UA Amount100000
received from race winnings35000
Gifts Received during the previous year 2019-20
() Received 20,000 as gift from his friend. ) Received 1,00,000 as gift from his elder brother.
(i) iM
Received ? 1,40,000 as gift on his marriage. Received 80,000 as gift from his NRI friend on
1-1-2020.
( Another gift of 18,000 received from his friend. Hints : Taxable income from other sources 2,68,000 : gifts at (i) and (i) are exempted]
Good updates. Thanks
Dividend: TDS deducted on dividends now from FY 2021-21. That means dividend is taxable and to be declared by the tax payer under the head “income from other sources”.
Kindly clarify in line with your article mentioning about dividend taxation.
lac 2 lac or up to 3 lac Income from other sources, which cannot prove with paper or any evidences as well as commission in cash basis, dalali a small amount of Rs. 8000 or 9000 which may goes 1 lac up to 3 or 4 lac in a year, the taxpayer could not declare this income into his return. then what means of income from other source. This is not a theft, only honestly income, but due to unproved or unverifiable, These income disallowed, why ?
Post offices savings is taxable?