INCOME FROM

OTHER
SOURCES

NAME FREYA P MISTRY

CLASS SYBCOM SEM 4
ROLL NO 153
INDEX
INTRODUCTION 3
METHOD OF ACCOUNTING 3
SCOPE OF INCOME 3
INCOME FROM OTHER SOURCES EXAMPLES 4
OTHER EXAMPLES 5
MOVABLE PROPERTY AS GIFT 6
IMMOVABLE PROPERTY AS GIFT 6
GIFT 7
AMOUNT RECEIVED FROM LIFE INSURANCE POLICY 7
DIVIDEND 8
INCOME FROM LOTTERY PUZZLE & GAME SHOWS 8
INCOME FROM COMPOSITE LETTING OF MACHINERY
BUILDING FURNITURE 8
FOFEITURE OF ADVANCE MONEY RECEIVED
FOR TRANSFER OF IMMOVABLE PROPERTY 9
INTEREST ON COMPENSATION OR ENHANCED
COMPENSATION 9
INTEREST ON SECURITIES 10
AGRICULTURAL INCOME FROM ABROAD 10
PERMISSIBLE DEDUCTION 11
AMOUNTS EXPRESSLY DISALLOWED 11
CONCLUSION 12
BIBLIOGRAPHY 12
Introduction
As per the Section 14 of the Income Tax Act of 1961, there can be several modes of income for an
individual. The income tax computation is an important part and has to be calculated according to the
income of a person. For a hassle-free computation, the income has to be classified properly so that there is
zero confusion regarding the same. The government has classified the sources of income under separate
heads and then the income tax is computed accordingly. The provisions and rules are according to the details
mentioned in the Income Tax Act.

The five main heads of income according to the above-mentioned Section 14 for the computation of the
Income Tax in India are:

 Income from Salary

 Income from House Property
 Income from Profits and Gains of Business or Profession
 Income from Capital Gains
 Income from Other Sources

In this project we are going to discuss about the last head of income called “Income from other sources”.
Income, which is not categorized in the above mentioned 4 heads, can be sorted in this category.
Some of the examples can be interest income from bank deposits, lottery awards, card games, gambling or
other sports awards are included in this category.
These incomes are attributed in the Section 56(2) of the Income Tax Act and are chargeable for income tax.

Method of accounting
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.

Scope of Income Chargeable under the head 'Income from Other Sources' (Section 56)
As per section 56(1), income of every kind, which is not to be excluded from the total income under this
Act, shall be chargeable to income-tax under the head "Income from Other Sources" if it is not chargeable to
Income-tax under any of the first four heads specified in Section 14.

In other words, the following conditions must be satisfied before an income can be taxed under the head
"Income from Other Sources":

 there must be an income;

 such income is not exempt under the provisions of this Act;

 such income is not chargeable to tax under any first four heads viz., "Income from Salary", "Income
from House Property", "Profits and Gains of Business or Profession" and "Income from Capital
Gain".

Income from other sources is, therefore, a residuary head of income.

“Income from other sources” are the following
 Dividends

 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’:
 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;
 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;

 If immovable property is received for consideration which is less than the stamp duty value of
property by higher of following amount the difference is chargeable to tax:
o the amount of Rs. 50,000

o the amount equal to 10% of consideration.

 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
 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.

 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:

 Where the consideration for issue of shares is received by a venture capital undertaking from a
venture capital company or venture capital fund.

 Where the consideration for issue of shares is received by company from class or classes of person as
notified by the Government.

 Any compensation received by a person in connection with the termination of his employment or
modification of terms and conditions relating thereto.

 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:

 Such sum is forfeited; and

 The negotiations do not result in transfer of such capital asset.

Examples of other receipts chargeable as income from other sources

Here are some examples of other receipts that automatically fall under this category.

 Income from sub-letting of a house property by a tenant;

 casual income;
 insurance commission;
 family pension (payments received by the legal heirs of a deceased employees);
 director's sitting fee for attending board meetings;
 interest on bank deposits/deposits with companies;
 interest on loans;
 income from undisclosed sources;
 remuneration received by Members of Parliament;
 interest on securities of foreign governments;
 examinership fees received by a teacher from an institution other than his employer;
 total interest till date on employee's contribution to an unrecognised provident fund at the
time when the payment of lump sum amount from the unrecognised provident fund is due;
 rent from a vacant piece of plot of land;
 agricultural income from agricultural land situated outside India; (xv) interest received on
delayed refund of income-tax;
 income from royalty, if it is not income from business or profession;
 Director's commission for standing as a guarantor to bankers;
 Director's commission for underwriting shares of a new company;
 Gratuity received by a director who, under the relevant contract, is not an employee or
servant of the company, is assessable as income from other sources;
 Income from racing establishment;
 Income from granting of mining rights;
 Income from markets, fisheries, rights of ferry or moorings;
 Income from grant of grazing rights;
 Interest paid by the Government on excess payment of advance tax, etc.;
  Income received after discontinuance of business.

Most common incomes which get classified in almost every ones IT returns are as
follows
 All dividends received are taxable under the head of income from other sources.

Interest from deposits and bonds are also taxed under Income from other sources.

 One-time income by way of winnings from lotteries, crossword puzzles, races including horse races,
card games, gambling or betting of any form is treated as income from other sources.

 Gifts such as any sum of money and movable or immovable property that’s received without
consideration are also taxable under this head.

Movable Property as Gift

Without consideration:
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.

For Inadequate Consideration:

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.

 Immovable Property as Gift:

Without Consideration:
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.

For Inadequate 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.
Gifts
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:
 from any relative; or
 on the occasion of the marriage of the individual; or
 under a will or by way of inheritance; or
 in contemplation of death of the payer or donor or
 from any local authority or
 from any fund or foundation or university or other educational institution or hospital or other medical
institution or any trust or institution referred to in clause (23C) of section 10; or
 from or by any trust or institution registered under section 12A or section 12AA; or
 by any fund or trust or institution or any university or other educational institution or any hospital or
other medical institution or
 by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause
(vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or
clause (vid) or clause (vii) of section 47; or
 from an individual by a trust created or established solely for the benefit of relative of the individual.
 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

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.

Tax treatment of amount received from life insurance policy

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:
 Exemption is available only in respect of amount received from life insurance policy.

 Exemption under section 10(10D) is unconditionally available in respect of sum received for a policy
which is issued on or before March 31st, 2003, however, in respect of policies issued on or after April
1st, 2003, the exemption is available only if the amount of premium paid on such policy in any
financial year does not exceed 20% (10% in respect of policy taken on or after April 1 st, 2012) of the
actual capital sum assured. It should be noted that amount received on death of the person will
continue to be exempt without any

 Value of premium agreed to be returned or of any benefit by way of bonus (or otherwise), over and
above the sum actually assured, which is received under the policy by any person, shall not be taken
into account while calculating the actual capital sum assured.
Dividends
Dividends are taxable under ‘income from other sources,’ based on the residential status of the source
company that paid out the dividend. Dividends are always taxed under income from other sources. However,
dividends from a domestic company are normally exempt from tax, as the company declaring dividend pays
dividend distribution tax. However, with effect from 01.04.2020, the Government of India has abolished
dividend distribution tax. From the financial year 2020-21, the shareholder has to pay tax on the dividends
received. Also, the benefit of basic exemption limit is available for the dividend income.

Dividend from an Indian company

If any company has paid Dividend Distribution Tax (or DDT) on this receipt of income, the dividend is
exempted from tax. Under Section 115BBDA of the Act, however, if a resident individual, firm, or HUF
receives dividends over Rs 10 lakhs from an Indian company, then the excess amount over Rs 10 lakhs is
subject to taxation at 10%.

Dividend from a foreign company

Dividends received from any foreign company are subject to taxation under ‘Income from Other Sources.’

Income Tax on winnings from Lottery, Game Shows, Puzzle

If you receive money from winning the lottery, Online/TV game shows etc., it will be taxable under the head
Income from other Sources. The income will be taxable at the flat rate of 30% which after adding cess will
amount to 31.2%.Incomes from following sources come under this category:

 Lottery
 Game Show or any entertainment programon television or electronic mode
 Crossword Puzzle
 Gambling or betting
 Races including Horse races.

Income from Composite Letting of Machinery, Plant or Furniture and Buildings

Section 56(2)(iii)

If an assessee lets on hire machinery, plant or furniture and also building and letting of building is
inseparable from letting of machinery, plant or furniture, income from such letting is taxable as income from
other sources, if the same is not chargeable to tax under the head “Profits and gains of business or
profession”.

On the basis of the judicial pronouncements, the following broad conclusions can be drawn:

If there is letting of machinery, plant and furniture and also letting of the building and the two lettings form
part and parcel of the same transaction or the two lettings are inseparable (in the sense that letting of one is
not acceptable to the other party without letting of the other; for instance, letting of cinema house along with
letting of furniture) then such income is taxable under section 56(2)(iii) under the head “Income from other
sources” (if it is not taxable as business income). This rule is applicable even if sum receivable for the two
lettings is fixed separately.
If a building is let out but other assets like machinery, plant or furniture are not given on rent. However,
certain amenities like lift services, air-conditioning, fire fighting facilities, etc., are provided, then section
56(2)(iii) is not applicable. The essential requirement of section 56(2)(iii) is that there should be letting of
plant, machinery or furniture and also letting of building.

The aforesaid rule is applicable even if the assessee receives composite rent from his tenant towards building
as well as services/amenities. The portion of rent attributable to the building should only be assessed as
“Income from house property” and balance portion attributable to amenities must be assessed as “Income
from other sources”.

Deductions permissible from Letting out of Machinery, Plant or Furniture and Buildings
Section 57(ii) and (iii)

The following deductions are allowable:

 Current repairs, to the premises held otherwise than as tenant.

 Insurance premium against risk of damage or destruction of the premises.
 Repairs and insurance of machinery, plant or furniture.
 Depreciation based upon block of assets, in the same manner as allowed under section 32 in the case
of Income from Business and Profession subject to the provisions of section 38 i.e. if it is partly let
and partly used for own purpose, deduction of expenses (including depreciation) shall be allowed to
the extent it is let out.
 Any other expenditure: Any other expenditure, not being a expenditure of a capital nature, laid out or
expended wholly and exclusively for the purpose of making or earning such income can be claimed
as a deduction.

Forfeiture of Advance Received for Transfer of a Capital Asset to be Taxed under the
head Income from Other Sources Section 56(2)(ix)

According to section 56(2)(ix), any sum of money, received as an advance or otherwise in the course of
negotiations for transfer of a capital asset shall now be taxable under the head income from other sources if:

 Such sum is Forfeited; and

 The negotiations do not result in transfer of such capital asset.

Interest on Compensation or Enhanced Compensation Section 56(2)(viii)

As per section 145A(b), any interest received by an assessee on compensation or enhanced compensation, as
the case may be, shall be deemed to be the income of the year in which it is received.

Further, as per section 56(2)(viii), income by way of interest received on compensation or on enhanced
compensation referred to in section 145A(b) above shall be taxable under the head income from other
sources in the previous year in which such interest is received.

Deduction from such interest Section 57(iv)

In the case of above interest which is taxable under the head income from other sources, a deduction of a
sum equal to 50% of such income shall be allowed to the assessee and no deduction shall be allowed under
any other clause of section 57.
Interest on Securities

Income, by way of interest on securities, is chargeable under the head "income from other sources", if such
income is not chargeable to income-tax under the head, "Profits and Gains of Business or Profession".

According to Section 2(28B) "Interest on securities" means:

 Interest on any security of the Central Government or a State Government;

 Interest on debentures or other securities for money issued by, or on behalf of a local authority or a
company or a corporation established by Central, State or Provincial Act.

Thus securities may be divided into following categories:

 Securities issued by Central/State Governments;

 Debentures/bonds issued by a local authority;
 Debenture/bonds issued by companies;
 Debenture/bonds issued by a corporation established by a Central, State or Provincial Act i.e.
autonomous and statutory corporations.

Chargiability of Interest on Securities :

 Income by way of interest on securities is taxable on “receipt” basis, if the assessee maintains books
of account on “cash basis”.

 It is taxable on “due” basis when books of account are maintained on mercantile system.

 Interest is taxable on “receipt” basis, if such interest had not been charged to tax on due basis for any
earlier previous year.

Deductions for Expenses from Interest on Securities [Section 57(i) and (iii)]:
As discussed in the case of dividends, the following deductions will also be allowed from the gross interest
on securities:

 Collection charges [Section 57(i)]:

Any reasonable sum paid by way of commission or remuneration to a banker, or any other person for
the purpose of realising the interest.

 Interest on loan [Section 57(iii)]:

Interest on money borrowed for investment in securities can be claimed as a deduction.

 Any other expenditure [Section 57(iii)]:

Any other expenditure, not being a expenditure of a capital nature, expended wholly and exclusively
for the purpose of making or earning such income can be claimed as a deduction.

Agricultural income from a place outside India

Under the India Income-tax law, agricultural income is defined to include income from agricultural land,
buildings on or related to an agricultural land and commercial produce from an agricultural land “in India".
Agricultural income as defined above is exempt from tax in India subject to prescribed conditions. However,
agricultural income from land situated outside India it will be taxable in India. It would be included under
the head ‘Income from Profits and Gains of Business or Profession’, if it is carried on as a business activity
and in any other case under the head ‘Income from Other Sources’.
Permissible Deductions

The following deductions can be claimed while computing income from other sources:

 Commission or remuneration for realising dividends or interest on securities.

 Any sum received by an employer from employees as a contribution towards any welfare fund of
employees is first included as income of the employee. If the employer credits the sum to the
employee’s account under the relevant fund on or before the due date which applies to the fund, then
the amount of the employee’s contribution is deductible from the income of the employer.
 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 the plant, machinery,
furniture and building, which are chargeable to tax.
 A deduction of lower of Rs.15,000 or 33.33% of the income is available in case of income in the
nature of family pension. Family pension refers to the regular monthly amount payable by the
employer to the family members of the deceased employee.
 The 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 the
income taxable under this head.

Amount Expressly Disallowed in computing the 'Income from Other Sources' Section
58

The following expenses are not deductible by virtue of section 58 in computing the income chargeable under
the head 'Income from Other Sources' :

 PERSONAL EXPENSES [Section 58(1)(a)(i)] - Any personal expenses of the assessee is not
deductible.

 INTEREST [Section 58(1)(a)(ii)] - Any interest (which is chargeable under the Act in the hands of
recipient) which is payable outside India on which tax has not been paid or deducted at source, is not
deductible.

 SALARY [Section 58(1)(a)(iii)] - Any payment (which is chargeable under the head “Salaries” in
the hands of recipient and payable outside India), is not deductible if tax has not been paid or
deducted therefrom .

 WEALTH TAX [Section 58(1)] - Any sum paid on account of wealth-tax is not deductible.

 TDS DEFAULT [Section 58(1A)] - Disallowance provisions pertaining to TDS defaults covered by
section 40(a)(ia) are applicable .

 AMOUNT SPECIFIED BY SECTION 40A [Section 58(2)] - Any expenditure referred to in section
40A like excessive or unreasonable payments to certain specified persons [Section 40A(2)] and
payments exceeding Rs. 20,000 otherwise than by way of account payee cheque [Section 40A(3)];

 EXPENDITURE IN RESPECT OF ROYALTY AND TECHNICAL FEES RECEIVED BY A

FOREIGN COMPANY [Section 58(3)] - In the case of foreign companies, expenditure in respect of
royalties and technical service fees as specified by section 44D is not deductible.

 EXPENDITURE IN RESPECT OF WINNINGS FROM LOTTERY [Section 58(4)] - No deduction

shall be allowed under any provision of the Act in computing the income by way of any winnings
from lotteries, crossword puzzles, races.However, expenditure incurred by the assessee for the
 activity of owning and maintaining race horses shall be allowed as a deduction while computing the
income from this activity.

Conclusion
For the purpose of computation of income tax five heads of income are there. The income
from other sources head is very crucial to classify those income that cannot be expressly
classified under other heads of income. The head “Income from other sources” gives clarity
and understanding about other incomes which are significant but don’t have characteristics
to be classified as income under the first 4 heads of income. These incomes are taxable in a
particular manner. These incomes are taxable but just like other heads they have different
manner of computation. This project has thrown light on how income from other sources is a
very important head of income in income tax and it cant be ignored as a unimportant just
because residual incomes are classified under it.

BIBLIOGRAPHY
Manupatra
Mokal
Taxguru.com
Direct Tax by Prof T N Manoharan