CHAPTER:- IFOS (A.Y.

2023-24)
IFOS can be broadly categorised into following FOUR parts:-

A. Income chargeable only under the head IFOS C. Income chargeable under IFOS only if not
covered by PGBP or SALARY
I. Dividends [Sec. 56(2)(i)] I. Any sum received under Keyman
II. Winning from lotteries, crossword Insurance Policy
puzzles, races including horse races, card Maturity Chargeability
games and other games of any sort, Proceeds Head
gambling, betting of any form or nature, received by-
etc. (i.e. casual income)[Sec. 56(2)(ib)] Employer having PGBP
III. Gift received by Indi./HUF [Sec. 56(2)(vii)] B&P
IV. Gift received by closely held co./firm [Sec. Employee Salary
56(2)(viia) & Sec. 56(2)(viib)] Any other person IFOS
V. Advance sum of money forfeited in (e.g., family
relation to capital asset [Sec. 56(2)(ix)] member of
VI. Interest on compensation or enhanced employee)
compensation received during the year II. Salary of MPs/MLAs
[Sec. 56(2)(viii)]
B. Income chargeable under IFOS only if not D. Income not chargeable under any other head
covered by PGBP of income
I. Interest on securities All other income chargeable under the Income
(If securities are held as stock in trade, Tax Act but not falling under any other specific
income will be chargeable under the heads of income shall be taxable under IFOS.
head PGBP) [Sec. 56(2)(id)]
II. Any sum collected from employees
towards their share of contributions to
any PF/Superannuation fund/ESI
fund/any other welfare fund (when
income of employer is not in the nature
of PGBP- here, income is taxable u/s 56
and corresponding dedu. u/s 57 shall be
allowed) [Sec. 56(2)(ic)]
III. Income of letting of P&M or furniture
[Sec. 56(2)(ii)]
IV. Income of letting of P&M or furniture
together with building, if the letting of
the building is inseparable to the letting
of other assets [Sec. 56(2)(iii)]

 Method of Accounting [Sec. 145]:-

IFOS is computed based on method of accounting (cash/mercantile) followed by the assessee.

However, following incomes are always taxable on RECEIPT BASIS:-

a) Deemed Dividend u/s 2(22)(e)

b) Interest on compensation or enhanced compensation
 CHAPTER:- IFOS (A.Y. 2023-24)

 TAXABILITY OF GIFTS [ Section 56(2)(vii)]:-

1] Basic aspects of the provisions
- This provision explains the tax treatment in the hands of RECIPIENT (transferee) of gift.
- Taxability is attracted under this provision when Individual/HUF receives-
i) Sum of Money and/or;
ii)Property
without consideration or for inadequate consideration.
- “Sum of money” covers gift in cash/cheque/draft.
- “Property” means following CAPITAL ASSET of the assessee(recipient):-
i. Immovable property being land or building or both.
ii. Shares and securities
iii. Jewellery
iv. Archaeological collection
v. Drawings
vi. Paintings
vii. Sculptures
viii. Any work of art or
ix. Bullion.

2] Conditions for Taxability of Gift u/s 56(2)(vii):-

1) The recipient is an Individual or an HUF;

2) ‘SUM OF MONEY’ or ‘PROPERTY’ is received by the recipient as gift;
3) It is received on or after 1st October, 2009;
4) It does not fall into the exempted category;
5) Such ‘sum of money’ or ‘property’ should be covered within any of the following five
categories:-

Type of Gift Value Received Taxable Amount

Monetary Amount received > Rs. 50,000/- WHOLE of the receipt
Immovable
Property
-without Stamp Value > Rs. 50,000/- Stamp value
consideration
-inadequate (Stamp value – consideration) > Rs. 50,000/- Stamp value –
consideration consideration
Movable
Property
-without Fair Market Value > Rs. 50,000/- Fair Market Value
consideration
-inadequate (FMV – consideration) > Rs. 50,000/- FMV – Consideration
consideration
 CHAPTER:- IFOS (A.Y. 2023-24)

3] Exempted Category:-

Gift received from the following persons/ under following situations are not taxable u/s 56(2)(vii):-

a) From Relative
(Spouse, Bro/sis, Bro/sis of spouse, Bro/sis of parent of individual, lineal ascendant or
descendant of individual, lineal ascendant or descendant of spouse of individual and
SPOUSE OF ALL THESE)
b) On the occasion of MARRIAGE of individual
c) Under Will/Inheritance
d) In contemplation of death of the Payer/Donor
e) From Local Authority
f) From Fund/Hospitals/Educational Institutions referred to in Sec. 10(23C)
g) From Trust/Institution registered u/s 12AA.

 DEEMED DIVIDENDS [Section 2(22)(a) to 2(22)(e)] :-

(1) Distribution of accumulated profits entailing the release of company’s assets [Sec.2(22)(a)]:-

2) Distribution of accumulated profit in the form of debenture, debenture stock, deposit

certificates & bonus to preference shareholders [Sec.2(22)(b)]:-

(3) Distribution of accumulated profit at the time of liquidation of company [Sec.2(22)(c)]

(4) Distribution of accumulated profit on reduction of capital [Sec.2(22)(d)]

(5) Distribution of accumulated profit by way of advance or loan [Sec.2(22)(e)]

 Deductions available under the head IFOS [Sec. 57] :-

1) In respect of dividend income (other than exempt dividend) or interest income, any
reasonable expenditure incurred by way of commission or remuneration for realisation
of such income is deductible;
2) In respect of any sum collected from employees towards PF /ESI / superannuation fund/
other welfare fund, deduction shall be allowed to the extent the amount is remitted
within the relevant due date under respective Acts;
3) In respect of family pension a sum equal to 33 1/3% of the pension or Rs. 15,000/- w.e.
is less shall be allowed as deduction;
4) In respect of income earned by way of lease rental on letting of machinery, plant and
furniture with or without building, the following shall be deducted:
a) Repairs, b) Insurance and c) Depreciation;
5) Any other expenditure (not being capital expenditure) incurred for the purpose of
earning any income chargeable under this head;
 CHAPTER:- IFOS (A.Y. 2023-24)
6) In respect of interest received on compensation or enhanced compensation, a
deduction equal to 50% of such income shall be allowed. No other expenditure shall be
allowed under any other clause of this section.

 Amount not deductible from the IFOS [Sec. 58] :-

1) Personal expenses;
2) Interest and salary payable outside India, if TDS not deducted or paid;
3) Wealth tax;
4) Expenses of the nature prescribed u/s 40A;
5) Any expenses or allowances in respect of winnings from lotteries, crossword puzzles,
card games, races including horse race, gambling, betting etc.
 CHAPTER:- IFOS (A.Y. 2023-24)
Example 1 :- Mr X receives following income during PY 22-23. Compute taxable income
under the head IFOS:-
1) Interest from Bank FD – Rs. 45,000 (TDS of Rs 5,000)
2) Interest from Saving Bank Account – Rs 12,000
3) Lottery winning – Rs. 70,000 (TDS of Rs. 30,000)
4) Dividend from Indian Company – Rs. 20,000/-
5) Dividend from Foreign Company – Rs. 20,000/-
6) Interest on enhanced compensation – Rs. 50,000/-
7) Cash Gift received from wife – Rs. 1,00,000/-
8) Cash Gift received from friend – Rs. 40,000/-
9) Family Pension received – Rs 30,000/-

SOLUTION:
STATEMENT SHOWING COMPUTATION OF TAXABLE INCOME UNDER THE HEAD IFOS
MR. X (PY 22-23/AY 23-24)

PARTICULARS RS
Interest from Bank FD (Gross Up) 50,000
Interest on SB Account 12,000
Lottery Winning (Gross Up) 1,00,000
Dividend from Indian Company 20,000
Dividend from Foreign Company 20,000
Interest on Enhanced Compensation (50000 – 50% deduction) 25,000
Cash Gift received from wife NIL
Cash Gift received from friend NIL
Family Pension received 20,000
RECEIVED 30000
LESS EXEMPT (10000)
[30000*33.33% = 10,000 OR 15000 WE IS LESS]
IFOS 2,47,000
 CHAPTER:- IFOS (A.Y. 2023-24)
Example 2 :- Mr Y receives following income during PY 22-23. Compute taxable income
under the head IFOS:-
1) Interest from Bank FD – Rs. 90,000 (TDS of Rs 10,000)
2) Interest from Saving Bank Account – Rs 20,000
3) Winning from card games – Rs. 35,000 (TDS of Rs. 15,000)
4) Dividend from Indian Company – Rs. 10,000/-
5) Dividend from Foreign Company – Rs. 20,000/-
6) Interest on enhanced compensation – Rs. 80,000/-
7) Cash Gift received from fiancée on engagement – Rs. 1,00,000/-
8) Cash Gift received from friend on marriage anniversary – Rs. 40,000/-
9) Gift received from father on the occasion of birthday – Rs. 50,000
10) Family Pension received – Rs 50,000/-

STATEMENT SHOWING COMPUTATION OF TAXABLE INCOME UNDER THE HEAD IFOS

MR. Y (PY 22-23/AY 23-24)

PARTICULARS RS
Interest from Bank FD (Gross Up) 1,00,000
Interest on SB Account 20,000
Winning from Card Games (Gross Up) 50,000
Dividend from Indian Company 10,000
Dividend from Foreign Company 20,000
Interest on Enhanced Compensation (80000 – 50% deduction) 40,000
Cash Gift received from fiancée 1,00,000
Cash Gift received from marriage anniversary 40,000
Cash Gift received from father on birthday NIL
Family Pension received 35,000
RECEIVED 50000
LESS EXEMPT (15000)
[50000*33.33% = 16,665 OR 15000 WE IS LESS]
IFOS 4,15,000
 CHAPTER:- IFOS (A.Y. 2023-24)
Example 3 :- Mr Z receives following income during PY 22-23. Compute taxable income
under the head IFOS:-
1) Interest from Bank RD – Rs. 90,000 (TDS of Rs 10,000)
2) Dividend from Equity Oriented Funds of UTI – Rs 10,000
3) Winning from betting – Rs. 1,05,000 (TDS of Rs. 45,000)
4) Dividend from Reliance Limited – Rs. 10,000/-
5) Dividend from Apple Inc. (Foreign Company) – Rs. 20,000/-
6) Interest on enhanced compensation – Rs. 90,000/-
7) Cash Gift received from wife on birthday – Rs. 1,00,000/-
8) Cash Gift received from friend on marriage – Rs. 40,000/-
9) Gift received from friend on the occasion of birthday – Rs. 50,000
10) Family Pension received – Rs 90,000/-

STATEMENT SHOWING COMPUTATION OF TAXABLE INCOME UNDER THE HEAD IFOS

MR.Z (PY 22-23/AY 23-24)

PARTICULARS RS
Interest from Bank RD (Gross Up) 1,00,000
Dividend from Equity Oriented Funds of UTI 10,000
Winning from betting (Gross Up) 1,50,000
Dividend from Reliance Ltd. 10,000
Dividend from Apple Inc. 20,000
Interest on Enhanced Compensation (90000 – 50% deduction) 45,000
Cash Gift received from wife on birthday EXEMPT
Cash Gift received from friend on marriage EXEMPT
Gift received from friend on the occasion of birthday NIL
Family Pension received 75,000
RECEIVED 90000
LESS EXEMPT (15000)
[50000*33.33% = 29,999 OR 15000 WE IS LESS]
IFOS 4,10,000