INCOME FROM OTHER SOURCES

INTRODUCTION
 There are some incomes which are exempted from tax, while others are taxable.
 The taxability may be under the head income from salary, Income from house
property, Income from business and profession or Income from capital gain.

SECTION 56(i)
 Income of every kind which are taxable, and which are not covered under the
heads of salary, house property, business income, or capital gain, are covered
under the head of income from other sources.
 This head of income is a residual head because it tries to cover all other incomes
which are not covered and which are not exempted from tax.

 Income from other sources can be invoked only if the following conditions are
satisfied:
i) There is an income.
ii) That income is not exempted under Sec. 10 to Sec. 13A.
iii) That the income is not an income from salary, or income from house property, or
income from business and profession, or income from capital gains.

METHODS OF ACCOUNTING
 There are two methods of accounting.
i) Cash basis of accounting
ii) Mercantile basis of accounting

i) Cash Basis of Accounting

 Income is recognized only on its actual receipt and expenses are recognized only
on its actual payment.

ii) Mercantile Basis of Accounting

 Income is recognized even before its actual receipt and expense is recognized
even before its actual payment.

INCOME SPECIFIED UNDER SECTION 56

 Following are the incomes which are specified under Sec. 56 of the Income Tax
Act, and which are included under the head “Income from other sources”.

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 INCOME FROM OTHER SOURCES

i) Dividend:-
 It is the income of Shareholders of the Company.
ii) Interest on Securities if not Taxable
 It means Interest on debentures, bonds etc. which is an income of the person
receiving this interest.
iii) Income from winning lotteries, crossword puzzles, races including horse races,
etc.
iv) Income from machinery, plant or furniture let on hire.
v) Income from machinery, plant, or furniture along with building and letting
thereof is inseparable.
vi) Any sum received under the key-man insurance policy including bonus, if not
taxable.

INCOME NOT SPECIFIED UNDER SECTION 56

 Following are the incomes which are not specified under Sec. 56 of the Income
Tax Act, but are taxable.
i) Income from subletting
ii) Interest on bank deposits, loans, securities
iii) Agricultural income from a place outside India
iv) Rent of a plot of land
v) Mining rent and royalty
vi) Casual income under a will, contract, trust deed, etc.
vii) Salary payable to a member of parliament, etc.

TAXABILITY OF DIVIDEND
 Dividend is taxable irrespective of whether it is paid in cash in kind, or out of
taxable income or tax free income, or out of revenue profits or capital gains.
 Dividend includes deemed dividend mentioned under Section 2(22).
 Normally, dividend is taxable on the basis of declaration, whereas deemed
dividend is taxable on the basis of payment.
 A company at the end of the year after calculating its profit recommends
distributes some part of its profit to its shareholders.
 The profit so distributed among shareholders is called dividend.

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 INCOME FROM OTHER SOURCES

 Dividends from Indian Company is exempted from tax, whereas dividends from
any other company is taxable.
 Similarly any deemed dividends are also taxable.
 GROSS DIVIDEND = DIVIDEND RECEIVED + TDS
 TDS rate is 20% plus surcharge plus 2% Education Cess.

TAXABILITY OF INCOME FROM WINNING LOTTERIES, CROSS WORD PUZZLES, HORSE RACES,
ETC.
 It is similar to the taxability of dividend.
 But, the rate of TDS is 30% plus surcharge plus 2% Education Cess, and the
exemption amount is Rs. 5,000.
 However exemption amount in case of horse races is Rs. 2,500.

TAXABILITY OF INTEREST ON SECURITIES

 It is also similar to the taxability of dividend.
 But, the rate of TDS is 10 % plus surcharge plus 2% Education Cess, and the
exemption amount is Rs. 5,000.

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