What Is Income From Other Sources? Taxability, Exemptions and Deductions
Under the I-T Act, for the computation of total income, the income of an assessee is classified into five different heads of income. These are the income from salaries, house property, capital gain, profit and gains from business or profession, and income from other sources. In this article, we will learn more about the details of Income from other sources, its taxability, exemptions and deductions.
What is Income from Other Sources?
According to section 56 of the I-T Act, any income, profits, or gains included in the total income of an assessee but doesn’t fall under any other head of income is chargeable under the head “Income from Other Sources”. Thus, this head of the income is a residuary head that brings within its scope all the taxable income, profits, or gains of an assessee that fall outside the scope of any other head.
The following requirements should be met as per Section 56 of the Income Tax Act for an income to fall under the head “Income from Other Sources“:
- You earn taxable income during a financial year.
- The taxable income cannot be categorised under any other head of income, such as Salaries, Income from House Property, Profits and gains of business or profession, and Capital gains.
Incomes Chargeable under the head ‘Income from Other Sources.’
- Dividend Income
Dividend income includes the dividend received from any company, deemed dividend under section 2(22) (a)/(b)/(c)/(d)/(e), and interim dividend.
- Casual Income
Casual income includes winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, gambling, betting, etc.
- Interest in compensation or enhanced compensation
Any income earned by the assessee as interest received on compensation or enhanced compensation shall be taxable in the year it is received under the head “Income from other sources”.
- Advance forfeited for transfer of a capital asset.
Any sum of money received as an advance or otherwise in the course of negotiation for the transfer of a capital asset is chargeable to tax under the head “income from other sources” if the transfer of such capital asset doesn’t take place and such amount is forfeited.
- Compensation on termination of employment
Any compensation or payment received by the assessee in connection with the termination of employment or the modification of the terms and conditions relating to their employment shall be chargeable to tax under this head.
- Keyman Insurance Policy
Any sum received under a keyman insurance policy, including any bonus allocated on such policy, is chargeable under “Income from other sources” if such income is not chargeable under the head of salaries or profit or gains from business or profession.
- Interest Income From Saving Bank and Fixed Deposit
Any interest received on fixed deposits, post office or accumulated in a savings bank account must be declared income from other sources.
- Family Pension
If an assessee is receiving the pension on behalf of a deceased person, they should declare such income under the heading ‘Income from Other Sources’.
If an assessee receives any money as a gift without consideration, and the aggregate value exceeds INR 50,000, the total consideration received is taxable.
- Immovable Property
- If an assessee receives any immovable property as a gift without consideration, the stamp duty value of such immovable property will be taxable as income in the hands of the recipient if it exceeds INR 50,000.
- If an assessee receives any immovable property as a gift for a consideration that is less than the stamp duty value of the property and the difference between the stamp duty value and considerations is more than the higher of INR 50,000 and 10% of consideration, the difference between the stamp duty value and the consideration paid is taxable in the hands of the recipient.
- Movable Property
- If an assessee receives any movable property without consideration, the aggregate fair market value of such property on the date of receipt would be taxable in the hand of the recipient if the amount exceeds INR 50,000.
- If an assessee receives any movable property for inadequate consideration and the difference between the aggregate fair market value of such property and consideration exceeds INR 50,000, such difference would be taxable.
Deductions Applicable for Income from Other Sources under section 57 of the I-T Act
According to section 57 of the IT Act, any assessee earning income from other sources can claim deductions of the following expenses while calculating their income-
- In the case of income from mutual funds, specified companies, or dividends:
Interest expenditure is allowed as a deduction subject to a maximum of 20% of such income.
- In case of interest on securities:
Any amount paid as commission or remuneration to any other person.
- In case of interest on the compensation of compulsory acquisition:
The amount equal to 50% of such income shall be allowed as a deduction, and no deduction shall be allowed under any other clause of this section.
- Family Pension:
A deduction of a sum equal to 33-1/3 % of such income or INR 15,000, whichever is less, is allowed.
- Any other expenditure not in the nature of capital expenditure expended wholly and exclusively to earn such income.
Deductions not allowed under section 58 of the I-T Act.
- Any personal expense that the assessee bears.
- Any interest taxable under the I-T Act is payable outside India, but neither tax has been paid nor TDS deducted.
- Any payment is taxable under the head “Salaries” if it is payable outside India unless tax has been paid or deducted at source.
- Where 30% TDS has to be deducted from any sum payable to a resident and such tax has not been deducted or after deduction has not been paid on or before the due date of return filing under section 139(1).
- Any expenditure in which a payment is made in cash exceeding INR 10,000 to a person in a day.
Many passive income streams, such as dividends, interest, and rent, are taxable as income from other sources. A majority of us earn some form of these passive streams of income. Therefore, it is important to know about income from other sources and the available deductions so that you can disclose your income under the correct head in your tax return and the expenses you are entitled to claim under the Income Tax Act.
Frequently Asked Questions
I have won a lottery of ₹10 lakh. Would tax be deducted from the same? How much tax do I have to pay if tax is not deducted?
Yes, tax at the rate of 30% should be deducted under Section 194B since your winning is more than ₹10,000. Even if tax is not deducted, your winning will be subject to tax at the same rate of 30% under Section 115BB.
Can I claim a deduction under Section 80TTA for interest on fixed deposits?
No, you cannot claim a deduction for interest on fixed deposits. The interest would be taxable as per the slab rate applicable to you. However, senior citizens can claim a deduction of up to ₹50,000 under Section 80TTB.
Is cash received as a gift on the occasion of marriage taxable?
Any amount of cash received at the time of marriage is not taxable.
I have a fixed deposit and a savings account with a bank. Would tax be deducted from the interest earned by me?
Tax should be deducted by your bank under section 194A at the rate of 10% on interest on fixed deposits if the total amount of interest earned by you in the financial year is ₹40,000 or more (₹50,000 for senior citizens). Since Section 194A excludes savings bank interest from the applicability of TDS, no tax should be deducted by your bank.