Income from

UNIT13 INCOME FROM OTHER SOURCES Other Sources

Structure
13.0 Objectives
13.1 Introduction
13.2 Income Chargeable Under the Head "Income from Other Sources"
13.3 Deductions Allowed
13.4 Dividends
13.4.1 Rules for Taxation of Dividends
13.4.2 Types of Dividends
13.4.3 Taxability of Dividend Income
13.4.4 Illustrations on Dividend
13.5 Winnings from Lotteries, Crossword, Puzzles, Horse Races, Card
Games, etc. (Casual Income)
13.6 Interest on Securities
13.6.1 Basis of Charge
13.6.2 Kinds of Securities
13.6.3 Grossing up of Interest on Securities
13.6.4 Bond Washing Transactions
13.6.5 Interest on Securities Exempt from Tax
13.6.6 Securities Not Subject to TDS
13.6.7 Persons Not Subject to TDS
13.6.8 Illustrations of Interest from Securities
13.7 Income from Letting out of Plant,Machinery or Furniture.
13.8 Income from Composite Letting of Machinery, Plant, Furniture and
Building.
13.9 Contributions Received from Employees.
13.10 Receipts without Consideration
13.11 Family Pension Received by the Legal Heirs of a Deceased Employee
13.12 Receipt of Shares by a Firm or a Company
13.13 Share Premium in Excess of Fair Market Value
13.14 Interest on Compensation or on Enhanced Compensation
13.15 Deemed IncomesChargeable to Tax
13.16 Miscellaneous Illustrations
13.17 Let Us Sum Up
13.18 Key Words
13.19 Answers to Check Your Progress
13.20 Terminal Questions/Exercises

53
Income from Capital
Gains & Other 13.0 OBJECTIVES
Sources
After studying this unit, you should be able to:
• understand the list of various incomes falling under the head ‘Income
from other sources’; and
• explain in detail the provisions of income tax for dividends and interest
on securities and provisions relating to some other incomes also.

13.1 INTRODUCTION
You have read about four heads of income. Income specific to a particular
head is included in and charged to tax under that head. Income from other
sources is a head of income which includes all those incomes which are:
i) Listed in the definition of income,
ii) Not exempt from tax, and
iii) Not included in any specific head i.e., salaries, house property, profits
and gains of business or profession and capital gains.
iv) This means it is a residuary head which includes all those incomes which
are not included in a specific head.
In this unit, you will study in detail the incomes included under this head and
the provisions of income tax relating to them.

13.2 INCOME CHARGEABLE UNDER THE

HEAD 'INCOME FROM OTHER SOURCES'
Section 56 (2) of the Act states that, every kind of income which is included
in total income under the Income tax Act, and which is not chargeable to
income tax under any other head of income, is chargeable to income tax
under the head ‘Income from Other Sources’.
Under Section 56(2), the following incomes shall be chargeable under the
head ‘Income from Other Sources’:
1) Dividends
2) Income from winnings from lotteries, crossword puzzles, races including
horse races, card games or any other games, gambling, or betting etc.
3) Any sum received by the assessee from his employer as contribution to
any provident fund or superannuation fund or any fund set up under
Employees’ Insurance Act, 1948 or any other fund for the welfare of the
employees provided it is not chargeable under the head “Profits and
Gains of Business or Profession”.
4) Income by way of interest on Securities if not chargeable under “Profits
and Gains of Business or Profession”.

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 Income from
5) Income from machinery, plant or furniture belonging to the assessee or Other Sources
has been let out and if the income is not chargeable to income tax under
the head ‘Business or Profession’.
6) Where an assessee lets on hire machinery, plant or furniture belonging to
him and buildings, and the letting of the buildings is inseparable from the
letting of the said machinery, plant or furniture, the income from such
letting, if not chargeable to income tax under the head ‘Business’ is
chargeable under the head ‘Income from Other Sources’.
7) Any sum received under Keyman Insurance Policy, including bonus
allocated on the policy, if such income is not taxable under the head
"Salaries" or "Profits and Gains of Business or Profession."
8) Any sum of money, the aggregate value of which exceeds Rs. 50,000 is
received without consideration or property both movable and immovable
is received without consideration or property is received for an
inadequate consideration by any person on or after 01.04.2017 if the
amount of such gift or inadequate consideration exceeds Rs. 50,000,
then, after subtracting consideration from stamp duty value, the balance
amount shall be taxable income. (For details see point 13.10 of this unit)
9) Where a closely held company receives in any previous year from any
resident person any consideration for issue of shares in excess of face
value of share, then aggregate consideration received for such shares
over fair market value shall be taxable, however, this income is subject
to certain exceptions.
10) Interest income received on compensation or enhanced compensation
(50% taxable) shall be taxed in the year of its receipt.
11) Forfeiture of advance received for transfer of capital asset is taxed under
this head.
12) Any renewal or capital nature compensation received or receivable in
connection with termination or modification in the employment contract
is taxable under this head.
Besides the above, there are some other incomes which are also chargeable
under the head 'Income from Other Sources'. They are:
i) Any fees or commission received by an employee from a person other
than his employer.
ii) Any annuity received under a will. It does not include an annuity
received by an employee from his employer.
iii) All interest other than interest on securities such as bank interest, loan
interest etc.
iv) Income of a tenant from sub-letting the whole or part of the house
property.
v) Remuneration received by a non-professional for doing examination
work, viz., a professor getting such remuneration.
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Income from Capital vi) Income of Royalty.
Gains & Other
Sources vii) Director's fees.
viii) Rent of land not appurtenant to any building.
ix) Agricultural Income from land situated outside India.
x) Income from markets, ferries, and fisheries, etc.
xi) Income from leasehold property.
xii) Income of other persons included in the total income of the assessee,
e.g., if the assessee and his spouse are partners in the same firm, the
share of income of the spouse is included in the total income of the
assessee under the head Income from Other Sources’.
xiii) Income received by non-professionals in consideration of writing
articles in Journals.
xiv) Interest received on foreign securities.
xv) Income from undisclosed sources.
xvi) Interest received by an employee on his own contributions to an
unrecognized provident fund.
xvii) Salary of Member of Parliament, Member of Legislative Assembly or
Council.
xviii) Interest received on securities of a Co-operative Society.
xix) Family pension received by the widow and heirs of deceased employee.
xx) Amount withdrawn from deposit in National Savings Scheme on which
deduction u/s 80 CCA has been allowed including interest thereon.
xxi) Casual Income other than lottery etc.
xxii) Income from commission of insurance agent.
The above cannot be considered as final and conclusive list of incomes which
may be taxed under the head 'Income from other sources'. In fact, (as already
explained in preceding pages) any taxable income not covered under the first
four heads of income, shall be taxable under this head i.e. Income from Other
Sources.

13.3 DEDUCTIONS ALLOWED

Under Section 57, income chargeable under the head 'Income from Other
Sources' shall be computed after making the following deductions:
1) a) In the case of dividends or interest on securities, any reasonable sum
paid by way of commission or remuneration to a banker or any other
person for the purpose of realizing such dividend or interest on
behalf of the assessee is deductible. In other words, collection
charges of dividend or interest income are allowed as deduction to a
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 Income from
reasonable amount. No such deduction is allowed in case of a Other Sources
foreign company.
b) Interest on money borrowed for purchasing the shares/securities can
be claimed as deduction.
c) Any other reasonable amount of expenditure (not being of capital
nature) incurred to earn such income can be claimed as deduction.
d) Deduction on dividends (or income from units of mutual fund or
specified company) can be only for interest on loan taken to invest
in shares and in any previous year, this deduction cannot exceed
20% of the dividend income or income from units for that year.
2) Where employees' contribution to Provident Fund, etc., are treated as the
income of the assessee (employer), it is included in his income from
other sources and a deduction of the sum, credited by the assessee to the
employee's account in the relevant fund on or before the due date, will be
allowed under this head. However, if the aforesaid income falls under the
head ‘Profits and Gains of Business And Profession’, it will not be taxed
under the head Income from other sources.
3) In the case of income from letting of machinery, plant or furniture along
with letting of buildings, which is chargeable to tax under the head
'Income from other sources'; the deductions in respect of the following
shall be allowed:
i) Expenditure incurred regarding current repairs of machinery, plant,
furniture or building.
ii) Insurance premium paid regarding building, machinery, plant or
furniture.
iii) Depreciation on buildings, machinery, plant or furniture, unabsorbed
depreciation is also allowed as deduction as per Income Tax Act.
iv) Any other expenditure relating to factory and its assets.
4) In case of income in the nature of family pension received by the widows
or heirs of deceased employee, a deduction of sum equal to
33 1/3% of such income or Rs. 15,000, whichever is less, will be
allowed.
5) Any other revenue expenditure incurred wholly and exclusively for the
purpose of earning such income. It should not be in the nature of
personal expenses of the assessee. No such deduction is allowed in case
of a foreign company.
6) Under Section 57 (iv), in case of interest income on compensation or
enhanced compensation, a deduction of 50% of such income shall be
allowed as deduction but no other deduction under this section should be
allowed.
Note:
Losses under the head ‘Income from Other Sources’ can be set off in the
same year as per the income tax law and income not set off in the financial
year can be carried forward as per income tax act provisions.
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Income from Capital
Gains & Other 13.4 DIVIDEND
Sources
In ordinary language, dividend means, the sum received by a shareholder of a
company on the distribution of its profits; but under Section 2(22) dividend
includes the following:
a) Any distribution by a company of accumulated profits if such
distribution entails the release by the company to its shareholders of all
or any of the assets of the company. Such accumulated profit may be
distributed in cash or kind. Where the distribution is in kind, the market
value of the asset shall be deemed dividend in the hands of shareholders.
b) Any distribution to its shareholders by a company of debenture or
debenture stock or deposit certificates in any form, and any distribution
to its preference shareholders of shares by way of bonus, to the extent to
which the company possesses accumulated profits, whether capitalized
or not.
c) Any distribution made to the shareholders of a company on its
liquidation, to the extent to which the distribution is attributable to the
accumulated profits of the company immediately before its liquidation,
whether capitalized or not.
d) Any distribution to its shareholders by a company on the reduction of its
capital, to the extent to which the company possesses accumulated
profits, whether capitalized or not.
e) Any payment by a company, not being a company, in which the public is
substantially interested, of any sum by way of advance or loan to a
shareholder, being a person who is the beneficial owner of shares
holding not less than 10% of the voting power or to any concern in
which such shareholder is a member or a partner and in which he has a
substantial interest, to the extent to which the company possesses
accumulated profits except where the advance or loan is made toa
shareholder or the said concern by a company in the ordinary course of
its business, where the lending of money is substantial-part of the
business of the company, it shall not be considered as dividend.
Dividend does not include the following:
i) A distribution made in accordance with the above Clause (c) or Clause
(d) in respect of any shares issued for full cash consideration; where the
holder of shares is not entitled in the event of liquidation to participate in
the surplus assets.
ii) Where the company goes into liquidation consequent upon compulsory
acquisition of its undertaking by the Government or any Corporation
owned or controlled by Government, the distribution made by the
liquidator of the company to its shareholders will not be charged to tax as
‘dividend’ to the extent such distribution is attributable to the
accumulated profits of the company relating to any period prior to the
three successive previous years immediately preceding the previous year
in which the undertaking of the company is acquired.
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 Income from
iii) Any advance or loan made to a shareholder of the said concern by the Other Sources
companyin the ordinary course of its business, where the lending of
money is substantial part of the business of the company.
iv) Any dividend paid by a company which is set by the company against
the whole or any part of the sum previously paid by it as advance or loan
referred to in above Clause (e).
v) Where a company transfers its assets to another company in a scheme of
amalgamation, such transfer is not regarded as ‘distribution’ by the
company of its accumulated profit to its shareholders even though its
accumulated profits are embedded in the assets so transferred.

13.4.1 Rules for taxation of Dividends

The following are the rules for taxations of dividends:
i) Any dividends declared by a company shall be deemed to be the income
of the shareholders of the previous year in which it is declared.
ii) Any interim dividend shall be deemed to be the income of the
shareholders of the previous year in which the amount of such dividend
is unconditionally made available by the company to the members who
are entitled to it. It means that the date of declaration of such dividends is
immaterial so long as the amount is not released for disbursement.
iii) Dividend paid by an Indian Company outside India shall be deemed to
accrue or arise in India.
iv) In the case of dividend received from a foreign company, if the foreign
company has deducted tax at source and nothing is paid out of it to the
Government of India, the amount deducted as tax at source shall not be
included in the dividend income of the Indian shareholder.
v) The income tax deducted at source from the dividend declared for the
shareholders is to be included in the dividend income of the shareholders
and as such the net amount of dividend received by a shareholder has to
be grossed up or increased by the amount of tax deducted at source, and
the shareholder gets credit in his assessment for the amount of tax
deducted at source from the dividends declared by the company.

13.4.2 Types of Dividends

a) Normal or Final or Annual Dividend:
Any dividend declared by a company at its Annual General Meeting
shall be deemed to be the income of the previous year in which it is so
declared.
b) Interim Dividend:
An interim dividend is one which is declared by a company at any time
prior to its Annual General Meeting for the year. Any interim dividend
shall be deemed to be the income of the previous year in which the
amount of such dividend is unconditionally made available by the
company to the member who is entitled to it.
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Income from Capital c) Deemed Dividend:
Gains & Other
Sources Deemed Dividend is the dividend which is not actually paid as dividend
but assumed to be dividend for the purpose of taxation under Income Tax
Law under Section 2 (22) (a) to (e). It is divided in following Sections:
i) Distribution of assets deemed as dividend [Section 2 (22) (a)]
ii) Distribution of debentures, debenture stock or deposit certificates
deemed as dividend, Bonus shares given to preference Shareholders
also included in it. [Section 2 (22) (b)]
iii) Distribution of assets on liquidation deemed as dividend. [Section 2
(22) (c)]
iv) Distribution on reduction of share capital. [Section 2 (22) (d)]
v) Loans and advances by a closely held company deemed as dividend
[Section 2(22) (e)]
In all above cases, deemed dividend is restricted to the capitalized
accumulated profits distribute in the aforesaid manner.

13.4.3 Taxability of Dividend Income

i) Dividend is chargeable to tax in the hands of a person who receives it or
is entitled to receive it.
ii) Entire dividend income is taxable in the hands of the shareholder, who
holds the share on the date of declaration of dividend.
iii) Gross amount of dividend is included in the income of the shareholder.
iv) If net dividend (dividend – T.D.S.) is received by the shareholder, it has
to be grossed up and then included in the shareholder's income.
v) If no T.D.S. is made out of dividend, it need not to be grossed up as it
already grossed up.
vi) Gross dividend is included in the gross total income after allowing
permissible deductions.
vii) No deductions are allowed out of dividends exempt from tax.
viii) If the dividend is received from non-domestic company or a foreign
company, exemption u/s 10 (34) is not available in respect of dividend
from such companies.
ix) Dividend from a Co-operative society is the gross dividend (as they do
not make any T.D.S.) and is included in the total income of the assessee
as such.
x) Deemed dividend is treated as income of the previous year in which it is
so distributed or paid.
xi) Dividend received from Unit Trust of India is also taxable, subject to
certain exemption limit.
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 Income from
13.4.4 Illustrations on Dividend Other Sources

Illustration – 1
A company has accumulated profits of Rs. 30 lakhs excluding capitalized
profits i.e. bonus shares issued in the past of Rs. 10 Lakhs. The company
distributed assets of Rs. 25 Lakhs to the shareholders. Compute the amount
taxable as dividend if the market value of the asset on the date of distribution
is:
(i) Rs. 20 Lakhs (ii) Rs. 35 Lakhs (iii) Rs. 45 Lakhs
Solution:
Deemed dividend (Accumulated profit) is taxable in the hands of
shareholders and is taxable in the hands of company. The company shall be
liable to pay distribution tax @ 15% on [grossed up amount + surcharge @
12% + Health and Education Cess @ 4%] on the market value of the asset on
the date of distribution subject to the maximum extent of profits (capitalized
or not).
Hence, the amount of deemed dividend shall be:-
i) Rs. 20 Lakhs.
ii) Rs. 35 Lakhs.
iii) Rs. 40 Lakhs (Limited to accumulated profits + bonus shares)
Note: For detailed explanation see [Section 2 (22) (a)]
Illustration – 2
X Ltd. Share Capital is divided into 20,000 shares of Rs. 10 each. The
company reduced its capital by 10% @ Rs. 1 per share. The accumulated
profits of the company were Rs. 12,000. Mr. Satish holds 500 shares of the
company.
Calculate the amount of deemed dividend of Mr Satish.
Solution:
Amount Received by Mr. Satish @ Rs. 1 on
500 shares = Rs. 500
Amount Received from accumulated profit
�� �� �ℎ���� ℎ���
= ����������� ������ ×
����� ��. �� �ℎ����
500
= 12,000 × = ��. 300
20,000
Hence, Rs. 300 is the deemed dividend of Mr Satish and (Rs 500 - Rs 300)
Rs. 200 will be treated as refund of his capital.

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Income from Capital Illustration – 3
Gains & Other
Sources Mr. Zubin holds 500 shares (equity) of Rs. 10 each in K.K. Ltd which is an
Indian Company. On March 31, 2023, Mr. Zubin received Rs. 3,600 as
dividend and 300 bonus shares were also received on the same date. The
market value of the shares of the company was Rs. 25 per share.
Discuss chargeability to income tax of dividend and bonus sharesof Mr. Zubin
Solution:
i) Cash dividend is a gross dividend, therefore, Rs. 3,600, should be
included in the total income of Mr. Zubin during the assessment year
2023-24.
ii) Bonus shares received by Mr. Zubin are taxable as they are issued to
equity shareholders.
Illustration – 4
Mr Utkarsh gives you the following information regarding his incomes for
A.Y. 2023-24.
Rs.
(a) Income under the head salary (computed) 5,50,000
(b) Income from House Property 3,50,000
(c) Dividend from Domestic Company 2,00,000
Compute Tax Payable by Mr Utkarsh for AY 2023-24.
Solution:
Computation of Total Income and Tax of Mr Utkarsh for A.Y. 2023-24

Rs. Rs.
(a) Income from Salary 5,50,000
(b) Income from House Property 3,50,000
(c) Income from other sources :
Dividend from Domestic Company 2,00,000
2,00,000
Total Taxable Income 11,00,000
Tax payable

(a) Tax on Bal. Income of

Rs. 11,00,000
(i) First Rs. 2,50,000 Nil
(ii) Next Rs. 2,50,000 @ 5% 12,500
(iii) Next Rs. 5,00,000 @ 20% 1,00,000 92,500
(iv) On balance Rs. 1,00,000@30% 30,000
Total Tax 1,42,500
Add: Health and Education Cess @ 5,700
4%
Tax Payable 1,48,200
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 Income from
13.5 WINNINGS FROM LOTTERIES, Other Sources
CROSSWORD PUZZLES, HORSE RACES,
CARD GAMES, ETC (CASUAL INCOMES)
Income from winnings from lotteries, crossword puzzles, races including
horse races, card games and other games of any sort From gambling or
betting of any form of nature whatsoever, is taxable under head 'Income from
Other Sources' under Section 56 (2) (ib). No deduction in respect of
expenditure or allowance in connection with income by way of winnings
from lotteries, cross word puzzles, horse races, card games etc. shall be
allowed in computing the said income. However, expenses relating to the
activity of owning and maintaining racehorses are allowed. Deductions u/s 80
C to 80 U are also not allowed from this income, although, such income is a
part of total income. Incomes of an entertainment programme on electronic
mode or television in which people compete to win prizes are also included in
winning income categories. Similarly, tips received by taxi driver or waiter of
a hotel are casual income.
13.5.1 Taxability of winnings from Lotteries etc
[Section 115BB]
Winnings from Lotteries etc are taxed at a special rate of 30% + Health and
Education Cess @ 4%. Since, the Lottery income is taxed at a flat rate, the
basic exemption of income i.e. Rs. 2,50,000 or Rs. 3,00,000 (senior citizens)
is not available to the assessee.
13.5.2 Grossing up of Lottery Income etc.
Wherever, income from lottery etc. exceeds Rs. 10,000, a T.D.S. is made @
of 30%. The income received after deduction of T.D.S. needs grossing up of
such income. Grossing up of such income can be made by using following
formula:
a) For individual, H.U.F. A.O.P., B.O.I., firm, artificial judicial person,
cooperative society, local authority and domestic company (with
surcharge or without surcharge)
100
��� ������� ×
100 − ���� �� �. �. �.
Or
100
��� ������� ×
100 − 30
b) For salaried person, non-residents, and foreign company:
100
Winning received ×
[100 − (30%)]
Or
100
Winning received ×
70
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Income from Capital Note:
Gains & Other
Sources 1) Foreign companies whose income exceeds Rs. 50 lakhs but is less than
Rs.1 Crore or for other ranges are grossed up with different rates from
the rates explained above. As foreign companies with income above Rs
1 crore and Rs 10 crores are subject to surcharge.
Illustration – 5
Compute income from the other sources of Mr Anupam for A.Y. 2023-24.
Rs.
i) Winning from Horse Race 10,000
ii) Loss in card games 3,000
iii) Winning from wager 25,000
iv) Amount received from winnings of lottery(net) 66,500
v) Winning from T.V. show (Gross) 50,000

Solution:
Computation of Income from other sources of Mr Anupam for
AY 2023-24
Rs.
i. Winning from horse race 10,000
ii. Winning from wager 25,000
iii. Lottery (grossed up)
Rs66,500×100 95,000
100 – 30
iv. Winning from TV show 50,000
Income from other sources 1,80,000

Note: Loss on Cardgame is not deductible. It can be deducted only from

Income of card game if there are two card games and assessee has income in
one card game and loss in the other card game.
Check Your Progress A
1) State whether the following statements are True or False
a) Any income other than the incomes under the head Salary, House
Property, Business or Profession and Capital Gains, is included in
Income from Other Sources.
b) The salary of M.P. is taxable under the head ‘Salaries’.
c) Expenses on purchasing lottery tickets are deducted out of lottery
income.
d) Loss from lottery can’t be set-off

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2) Fill up the blanks: Other Sources
i) Winnings from crossword puzzles are an income but are taxable
under the head......
ii) The rate of deduction of tax at source from payments of winnings
from lottery is .....................................................during the financial
year 2022-23.
iii) Cost of purchasing lottery tickets is ................from the amount of
winnings received.
iv) Dividend received from an Indian company is ...........................

13.6 INTEREST ON SECURITIES

Interest on Securities, if charged under the head ‘Income from other sources’
means the following:
i) Interest on any security of the Central or State Government.
ii) Interest on debentures or other securities for money issued by or on
behalf of a local authority.
iii) Interest on debentures issued by a company (whether Indian or foreign);
and
iv) Interest on debentures or other securities issued by a Statutory
Corporation.
Security means an acknowledgement of a debt represented by a debenture,
bond, etc., issued by the Central or any State Government, local authority,
statutory corporation, or a company. Even securities issued by a foreign
government or foreign company are covered by this definition of securities
and interest thereon will be chargeable as interest on securities.
13.6.1 Basis of Charge
1) Income from interest on securities is chargeable on due basis if the
assessee follows mercantile system of accounting. In case books are
maintained on cash basis, this income is taxable on receipt basis.
However, where no method of accounting is regularly employed by the
assessee, the income from interest on securities shall be chargeable to tax
as the income of the previous year in which it becomes due though it
may be received later.
2) Interest on securities does not accrue from day to day but becomes
due on certain fixed dates only, which are mentioned on the security
itself. It means that interest on securities is chargeable to tax in the
hands of one who holds the securities, as owner, on the due date of
interest. Where securities are sold before the due date of interest, the
entire amount of interest payable on the next due date shall be deemed
to be the income of the buyer who holds the securities on the said due
date as owner thereof. This amount will not be apportioned on time
basis between the seller and the buyer
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Income from Capital 3) Interest on securities shall be chargeable to tax under the head ‘Profits or
Gains & Other
Sources
Gains of Business or Profession’ if securities are held as stock-in-trade.
However, if securities are held as investments, the interest on securities
shall be taxable under the head ‘Income from other Sources’.

13.6.2 Kinds of Securities

Securities may be (1) Government Securities and (2) Commercial Securities.
When the Securities are issued by the Government, they are termed as
Government securities. Similarly, when securities are issued by companies or
some other business institutions, they are termed as Commercial securities.

13.6.3 Grossing up of Interest on Securities

The following are the rules for grossing up interest on securities:
1) If the rate of interest is given, only the interest of tax-free commercial
securities is grossed up and interest on all other securities is not grossed
up.
2) Interest on tax-free commercial securities is always grossed up whether
its rate per cent is given or the amount received is given.
3) Interest on less tax non-government securities is grossed up only when
the amount received is given.
Table 13.1: Grossing up method for non-corporate resident assessee
Gross interest under various situations at a Glance
Types of Securities T.D.S. When Nominal value of When actual
Rate security and rate of interest amount of interest
is given received is given
1. Tax free Government NIL Interest amount as per % rate Interest Received
securities
(Not to be grossed
up)
2. Less tax Government NIL Interest amount as per % rate Interest Received
Securities
(Not to be grossed
up)
3. Tax free non-
government securities
(a) Listed 10% Amt. calculated by Interest received × 100
(To be grossed % × 100 90
up) 90

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(b) Unlisted 10% Amt. calculated by Interest received × 100 Other Sources
(To be % × 100 90
grossed up) 90
4. Less Tax Non-
government
securities
(a) Listed 10% Interest amount Interest received × 100
calculated by % 90
(Not to be grossed (Grossed up)
up)
(b) Unlisted 10% Interest amount Interest received × 100
calculated by % 90
(Not to be grossed (Grossed up)
up)

It should be clearly understood that the taxable income from interest on

securities is (i) net interest received by the security-holder plus (ii) the
amount of income tax deducted at source or paid by the authority responsible
for paying the interest, directly into the government treasury on behalf of the
security-holder.
Thus, the formula for grossing up of interest =
Net Interest received × 100
100 − TDS (%)
13.6.4 Bond washing Transactions
These transactions are not genuine; it is a method to avoid tax. Generally,
interest on securities is payable half-yearly or yearly on fixed dates. As the
whole amount of interest is regarded as the income of the person who
happens to be the owner on the due date of interest, some tactful persons sell
their securities a few days before the due date of interest, to their friends or
relatives and buy it back a few days after the due date. Thus, they do not
remain the owner of the securities on the due date and they are not required to
pay tax on this income from interest on securities. They sell their securities to
such persons whose total income including the income from interest on
securities either does not exceed the minimum taxable Limit or if it exceeds
that limit, it is lesser than that of the seller, so that either no tax will be
payable on such interest or it will be payable at a lower rate. Thus, the seller
escapes tax completely; and the buyer also does not pay tax on it as his
income is below the minimum taxable limit; and even if the buyer’s income
exceeds the minimum taxable limit, he will pay tax at lower rate, which is in
fact, secretly paid by the seller on behalf of the buyer. Such transactions are
called ‘Bond washing Transactions’. The general rule that tax is payable by
the person who is the owner of the securities on the due date of interest, does
not apply to bond washing transactions. In order to prevent this method of
avoiding tax, it has been provided that the Assessing Officer can include the
whole interest in respect of bond washing transactions in the income of the
transferor and not in the income of the transferee.

67
Income from Capital 13.6.5 Interest on Securities Exempt from Tax
Gains & Other
Sources According to Section 10(15), the interest on notified securities, bonds,
certificates and deposits is fully exempt from tax. Some of them are as under:
A) For all assesses:
i) 12 years National Savings Annuity Certificates.
ii) National Defence Gold Bonds, 1980.
iii) Special Bearer Bonds, 1991.
iv) Treasury Savings Deposit Certificates (10 years).
v) Post Office Cash Certificates (5 years)
vi) National Plan Certificates (10 years).
vii) National Plan Savings Certificates (12 years)
viii) Post Office National Savings Certificates (7 years/ 12 years).
ix) Post Office Savings Bank Account (to the extent of Rs 3,500 in
case of individual accounts, Rs 7,000 in case of joint accounts).
x) Post Office Cumulative Time Deposit Account (15 years).
xi) Scheme of Fixed Deposits governed by the Government Savings
Certificates (Fixed Deposits) Rules, 1968.
xii) Scheme of Fixed Deposits governed by the Post Office (Fixed
Deposits) Rules, 1968.
xiii) Special Deposit Scheme, 1981.
xiv) Public account in post office (upto Rs 5,000).
xv) Gold deposit bonds, 1999.
xvi) Deposit certificates issued under the Gold monetization scheme,
2015.
xvii) Bonds issued by local authority and specified by the central
government.
Further, interest on Public Account shall be exempt upto Rs. 3,500 in the case
of an individual account and Rs. 7,000 in the case of joint account. Under the
Post Office Savings Bank Rules a ‘Public Account’ can be opened by alocal
authority, a lawfully constituted association, institution or other body for the
encouragement of thrift or for the mutual benefit of its members and a High
School and Intermediate College (Payment of Salaries of Teachers and other
Employees) Act, 1971.
B) For individuals and H.U.F.
i) Interest on 7% Capital Investment Bonds.
ii) Interest on 10% Relief Bonds, 1995; 9% Relief Bonds, 1999; 8.5%
Relief Bonds, 2001; 8% Relief Bonds, 2002; 6.5% Saving Bonds,
2003.

68
 Income from
C) Interest to Non-Resident Indians on notified bonds Other Sources
D) Interest on notified bonds or Debentures of Public Sector
Companies.
E) Interest on securities held by the Welfare Commissioner of Bhopal
gas victims in the Reserve Bank of India.
Note: For detailed study refer Section 10(15),Block 1 Unit 4

13.6.6 Securities not Subject to TDS

According to Section 193, no tax shall be deducted from any interest payable
on any of the following securities:
1) 4.25% National Defence Bonds, 1972 held by a resident individual;
2) 4.25% National Defence Loan, 1968 or 4.75% National Defence Loan,
1972 held by an individual;
3) National Development Bonds;
4) 7-years National Savings Certificates (IV Issues);
5) Notified debentures issued by any institution or authority, or any public
sector company or any co-operative society, or a co-operative land
mortgage bank, or a co-operative land development bank;
6) 6% Gold Bonds, 1977 or 7% Gold Bonds, 1980 held by a resident
individual provided that the total nominal value of any of such bonds did
not in either case, exceed Rs 10,000 at any time during the period to
which the interest relates;
7) Any Security of the Central Govt., or a State Govt. excluding the interest
exceeding Rs. 10,000 payable on 8% savings (Taxable) Bonds, 2003 or
7.75% Savings (Taxable) Bonds, 2018;
8) Listed debentures held by a resident individual issued by a company in
which public are substantially interested if:
a) the interest is paid by the company by an account payee cheque; and
b) the aggregate amount of such interest paid or likely to be paid
during the previous year does not exceed Rs. 5,000.
9) Any interest payable to the Life insurance Corporation of India in respect
of any security owned by it or in which it has full beneficial interest;
10) Any interest payable to General Insurance Corporation of India in
respect of any security owned by it or in which it has full beneficial
interest;
11) Any interest payable to any other insurer in respect of any securities
owned by it or in which it has full beneficial interest; and
12) Any interest payable on any security issued by a company, whether such
security is in dematerialized form and is listed on a recognized stock
exchange in India in accordance with the Securities Contracts
(Regulation) Act, 1956 and the Rules made thereunder.
Note: For detailed study, refer Section 193 of the Act.
69
Income from Capital 13.6.7 Persons not Subject to TDS
Gains & Other
Sources If the securities are held by the following persons, no deduction of tax at
source will be made because if the securities are held by these persons,
interest on securities is exempt from tax under sections 10, 11 and 13A:-
i) Local authority u/s 10 (20);
ii) Approved Scientific Research Association u/s 10 (21);
iii) Any regimental fund or Non-public Fund u/s 10 (23AA);
iv) Any institution established solely for the development of Khadi or
village industries u/s 10.
v) Authority established for Khadi or village industries u/s 10 (23BB);
vi) Anybody for the administration of public religious trusts or
endowments u/s 10 (23BBA);
vii) The Prime Minister's National Relief Fund, the Prime Minister’s fund
for (Promotion of Folk Art), the Prime Minister's Aid to student fund,
u/s 10 (23C);
viii) Registered Trade Union u/s 10 (24);
ix) Statutory Provident Fund, Recognized Provident Fund, Approved
Superannuation Fund and Approved Gratuity Fund u/s 10 (25);
x) Member of a Schedule Tribe u/s 10 (26);
xi) Anybody, corporation or institution for promoting the interest of
members of Scheduled Castes or Scheduled Tribes u/s 10 (26 B);
xii) Public charitable and religious trust or institution u/s 11;
xiii) Any political party registered with the Election Commission of India
u/s 13A; and
xiv) Any notified fund, body or authority.
Note: For detailed study refer Section 10, 11 and 13 of the Act
13.6.8 Illustration on Interest from Securities
Illustration 6
The investments of Jitendra on 1st April 2022 were as given below:
i) Rs. 30,000, 10% U.P. Government Loan;
ii) Rs. 10,000, 10% Debentures of a Jute Mill company.
iii) Rs. 2,000 Interest received on Debentures of a Co-operative Society.
iv) Rs. 15,000, 6% Securities issued by a Foreign Government.
v) 7% National Plan Certificates Rs. 10,000.
vi) Rs. 1,500 received as dividend on units of Unit Trust of India.
vii) Rs. 3,600 received as interest on Government Securities.

70
 Income from
The Bank commission for collecting interest is Rs. 99. Interest on securities Other Sources
being payable in each case on 1st January and 1st July. Find out income from
other Sources’ for the assessment year 2023-24.
Solution:
Computation of Income from Other Sources of Mr. Jitendra for A.Y.
2023-24
Rs.
i) Interest on 10% UP Govt. loan for 1 year 3,000
ii) Interest on 10% Debentures of a Jute Mill Company for 1 year 1,000
iii) Interest on Debentures of a Co-operative Society (Not to be 2,000
grossed up)
iv) Interest on foreign government securities (Not to be grossed 900
up)
v) Interest on National Plan Certificates Exempt
vi) Dividend from U.T.I. (Not to be grossed up) Exempt
vii) Interest received on less tax govt.
Securities 3,600
10,500
Less: Bank Commission for collecting Interest 99
Income from Other Sources 10,401

Illustration-7
Mr. Subodh has the following investments in the previous year ended on 31st
March, 2023.
i) Rs. 10,000 Equity Shares of Thapper & Company Limited on which a
final dividend of 10% declared on 28th February 2023, which was
received by Mr. Subodh on 15th April, 2023.
ii) Rs. 12,000 Equity Shares of Birla Jute Limited on which an interim
dividend 10% was declared on 15th February, 2023 but paid on
15thApril, 2022.
iii) Rs. 45,000 Tax Free Debentures of a company (not listed on any stock
exchange) on which Rs. 3,582 received as interest.
iv) 10% Rs. 10,000 U.P. State Electricity Board Bonds.
v) Rs. 10,000 in Post Office Savings Bank Account on which Rs. 600
credited as interest during the year.
vi) Rs. 10,000, 9% National Rural Development Bonds.
vii) Special Bearer Bonds of Rs. 10,000 on which a premium of Rs, 1,000
received during the year.
viii) On 1st September, 1990 he bought 7% Capital investment Bonds of the
face value of Rs. 20,000 at par, for which he took a loan of Rs. 10,000
@ 10% p.a. on the same date.
71
Income from Capital Find out the income from other sources of Mr Subodh for the assessment
Gains & Other
Sources
year 2023-24.
Solution:
Computation of Income from Other Sources of Mr Subodh for the
Assessment Year 2023-24
Rs.
i) Final Dividend on Equity Shares 1,000
ii) Interim Dividend on Equity Shares not taxable Nil
iii) Interest on tax-free Debentures of a company
(not listed) 3,980
�,������
Grossed up � ��
�
iv) Interest on U.P.S.E.B. Bonds 1,000
v) Interest on Post Office Savings Bank A/c 600
vi) Interest on National Rural Development Bonds 900
vii) Premium on Special Bearer Bonds Exempt
viii) Interest on Capital Investment Bonds Exempt
5,880
Note:
1) Interest on P.O. Savings Bank A/c is totally exempt.
2) Interest on 7 % Capital Investment Bonds is exempt u/s 15(113).
3) Premium on Special Bearer Bonds is exempt u/s 5(1).
4) Interest on loan for purchasing exempted securities is not deductible as
its income is not taxable.
5) Interest on Capital Investment Bonds is exempt; hence, interest on loan
taken to purchase them is not deductible.
Illustration-8
Ms. Kusum furnishes the following particulars of her investments for the
P.Y.2022-23
i) Rs. 25,000, 7% Municipal Debentures
ii) Rs. 20,000, 8% Goa State Government loan
iii) Rs. 20,000, 18% debentures of Y. Co. Ltd. listed in a Recognized Stock
Exchange.
iv) Rs. 15,000, 7% Capital Investment Bonds of Government of India.
She also received during the same previous year:
1) Rs. 4,000 as interest on Central Government Securities
2) Rs. 3,000 as interest on State Government Securities
3) Rs. 1,000 as Interest on Bank Deposit
4) Rs. 2,000 interest on loan given to a friend.
Compute her income from other sources.
72
 Income from
Solution: Other Sources
Computation of Income from other sources of Ms. Kusum for the
A.Y. 2023-24
Rs.
i) Municipal Debentures 1,750
ii) Goa State Government Loan 1,600
iii) Listed debentures 4,000
100
�Rs. 3,600 × �
90
iv) 7% Capital Investment Bond Exempt
v) Central Government Securities 4,000
vi) State Government Securities 3,000
vii) Interest from bank 1,000
viii) Interest from friend 2,000
Income from Other Sources 17,350

Note:
Interest on debentures is calculated as follows:
20,000 × 18% = 3,600
Check Your Progress B
1) Fill up the blanks:
i) Security means an acknowledgement of a debt represented by
……………. issued by the Central or any State Government,
local authority or a Company etc.
ii) Where no method of accounting is regularly employed by the
assessee, the income from interest on securities is chargeable to
tax on ……………basis.
iii) Interest on securities does not …………… but becomes due on
certain fixed dates only.
iv) Where securities are sold in between the due dates of interest, the
………. amount of interest due on the next due date is deemed to
be the income of the…..
v) Bond-washing transactions are not ………………… it is a
method………………
vi) Income from sub-letting of house property is taxable under the
head…………….
2) State whether the following statements are True or False:
i) Interest on debentures issued by a foreign company is not treated
asinterest on securities.
73
Income from Capital ii) If any security is bought from a person in between the two due
Gains & Other
Sources
dates of interest, the buyer will pay tax on interest for only the
remaining period before the next due date, i.e., the time during
which the buyer was the owner of the security.
iii) There is no exception to the rule that interest is deemed to be the
income of the person who owns the security on the due date.
iv) From the point of view of security-holder there is no difference
between a Government security and Commercial security.
v) Even if the rate of interest is given, the interest on Commercial
security is always grossed up.
vi) Dividend received from an Indian company is taxable.
vii) Pension is taxable under the head “Salaries”.

13.7 INCOME FROM LETTING OUT OF PLANT,

MACHINERY OR FURNITURE
Income from letting on hire of plant, machinery or furniture belonging to the
assessee, is chargeable as income from other sources, provided that it is not
chargeable to tax under the head Profit or Gains of Business or Profession.

13.8 INCOME FROM COMPOSITE LETTING OF

MACHINERY, PLANT, FURNITURE AND
BUILDING
Where an assessee lets on hire the machinery, plant or furniture along with
building which is inseparable from any one or more of these assets and such
assets belong to the assessee, the income from such letting (known as
composite rent) shall be taxable under the head ‘Income from Other Sources’,
provided that it is not chargeable to tax under the head 'profits and gains of
Business or Profession'. Thus, income from letting a hotel, restaurant, factory
and cinema halls etc. is taxable under the head income from other sources. If
an assessee carries on a business of letting on hire factories, cinemas,
Restaurants or Hotels, such income shall be taxable under the head ‘profits
and gains of business or profession’.
Current repairs, insurance premium to cover the risk of damage or destruction
of premises, repair and insurance expenses of plant, machinery or furniture,
depreciation (as allowed under rules) and any other expenditure (not capital
expenditure) incurred wholly and exclusively for the purpose of earning such
income can be claimed as deduction.

74
 Income from
13.9 CONTRIBUTIONS RECEIVED FROM THE Other Sources
EMPLOYEES
If an assessee receives from his employees u/s 24 (x) any of the following
amounts, he shall be charged to tax for such amounts under the head 'Income
from Other Sources':
i) Contribution to any Provident Fund.
ii) Contribution to Superannuation Fund.
iii) Contribution to any fund set up under the employees State Insurance Act
1948, and;
iv) Contribution to any other fund for the welfare of employees.
The above mentioned amount is considered as Deemed Income of the
employer till it is deposited by him in any one or more of the funds for which
the said amount is received by the employer. But, when the employer
deposits the amount within the prescribed time in the concerned fund, for
which it is deducted, he becomes entitled for claiming deduction of such
amount. Thus, the amount of deduction (Deemed Income for Assessee) is
first included in his total income under the head ‘Income from Other Sources’
and once the amount is deposited in the respective fund within the prescribed
time, a deduction for such amount shall be allowed.

13.10 RECEIPTS WITHOUT CONSIDERATION

As per Section 56 (2) (x), the following receipts without consideration in the
hands of the assessee in previous year shall be taxable under the head income
from other sources:
a) Any money exceeding Rs. 50,000 in aggregate. The whole of the
aggregate value of such amount shall be taxed.
b) Any immovable property the stamp value of which exceeds Rs. 50,000,
the stamp duty value of such property shall be taxed.
c) Any immovable property for a consideration, the stamp duty value of
such property as exceeds 110% of consideration, and the difference
between stamp duty value and consideration is more than Rs. 50,000,
then the difference between stamp duty value and consideration is
chargeable to tax.
d) Any property other than immovable property without consideration, the
aggregate of fair market value of which exceeds Rs. 50,000, the whole of
the aggregate fair market value of such property shall be taxable.
e) Any property other than immovable property for a consideration which is
less than the aggregate fair market value of such property by an amount
exceeding Rs. 50,000, then, the aggregate fair market value of such
property as exceeds such consideration shall be taxable.

75
Income from Capital Provisions made in Section56 (2) (x) shall not to apply in the following
Gains & Other
Sources
cases [Exceptions to Section56 (2) (x)]:
i) Any sum of money received from relatives subject to certain
conditions.
ii) Any sum of money received on the occasion of marriage of individual.
iii) Any sum of money received under a will or inheritance.
iv) Any sum of money received in contemplation of death of the payer of
donor.
v) Any sum of money received from any local authority.
vi) Any sum of money received from any fund/foundation/university/other
educational institution/hospital or other medical institutions referred to
in income tax provisions.
vii) Any sum of money received from any trust or institution referred to in
Section 10 (23 C) or registered u/s 12 AA.
viii) Any sum of money or property received under a transaction not
regarded as transfer u/s 47.
ix) Any sum of money or property received from individual or trust created
or established solely for the benefit of relative of the individual.
x) If sum/property is received before 01/04/2017

13.11 FAMILY PENSION RECEIVED BY THE

LEGAL HEIRS OF A DECEASED
EMPLOYEE
Family pension received by the legal heir of the deceased employee shall be
considered as their income chargeable under the head 'Income from other
Sources'. Family Pension means a regular monthly amount payable by the
employer to any one of the legal heirs (belonging to the family) of an
employee in the event of his death. On such pension amount u/s 57 (ii a), a
standard deduction shall be allowed to the legal heir @ 33 1/3% of such
pension amount or Rs. 15,000, whichever is less.
If an employee dies during the active service or still in active service, the
exgratia payment made to the widow or other legal heirs of deceased
employee by the central government/state government/ Local Authority /
Government Public Sector undertakings will not be taxable in the hands of
recipient.
Lump – sum payment made gratuitously or by way of compensation or
otherwise to the widow or other legal heirs of an employee who dies in active
service is not taxable as income under the Income Tax Act.

76
 Income from
13.12 RECEIPT OF SHARES BY A FIRM OR A Other Sources
COMPANY
Provisions of [Section 56(2) (VII A)] regarding receipts of shares (in a
closely held company) by a firm or closely held companies are applicable
subject to following conditions:
1) Recipient is a firm or a company in which public is not substantially
interested (i.e. closely held company).
2) The asset received without consideration or inadequate consideration is
in the form of shares in a closely held company and is received from any
person on or after June 10, 2010 but before April 1, 2017.
3) The provision shall not apply in the cases where such property is
received under a transaction which is not regarded as a transfer.
If above conditions are satisfied, then the value of such shares is taxable in
the hands of recipient (i.e. Firm or closely held company) as under:
a) If the aggregate market value of shares received without consideration
during the previous year does not exceed Rs. 50,000, nothing shall be
taxable in the hands of recipient.
b) If the aggregate market value of shares received without consideration
during the previous year exceeds Rs. 50,000, aggregate fair market value
will be taxable in the hands of recipient.
c) If shares are received for a consideration less than fair market value and
the aggregate difference does not exceed Rs. 50,000, nothing shall be
taxable in the hands of recipient, but, wherever, the aggregate difference
is more than Rs. 50,000, the aggregate fair market value minus aggregate
consideration will be taxable in the hands of recipient.

13.13 SHARE PREMIUM IN EXCESS OF FAIR

MARKET VALUE
If the following conditions are satisfied, the aggregate consideration received
for such shares as exceeds the fair market value of the shares, shall be taxable
in the hands of recipient company under [Section 56 (2) (vii b)] under the
head 'Income from Other Sources'.
Conditions:
i) Recipient company should not be a widely held company.
ii) It receives consideration for issue of equity or preference shares from a
resident person.
iii) Shares are issued at a premium (consideration received minus face
value).
The above provision of taxability shall not apply if the consideration for issue
of share is received by:
77
Income from Capital a) Venture Capital undertaking from a Venture Capital Company or a
Gains & Other
Sources
Venture Capital Fund.
b) Company from a class or classes of persons, as may be notified by the
Central Government.
'Fair Market Value' of shares shall be the higher of the following:
i) The value as may be determined in accordance with the method as may
be prescribed.
ii) The value as may be substantiated by the company to the satisfaction of
the assessing officer based on the value of its assets including
intangible assets being goodwill, know-how, patents, copyrights,
trademarks, licenses, franchises or any other business or commercial
rights of similar nature.

13.14 INTEREST ON COMPENSATION OR ON

ENHANCED COMPENSATION
Income received as interest on compensation or enhanced compensation shall
be taxable under the head income from other sources in the year in which it is
received under Section 57 (iv), 50% of such interest is deductible. However,
no other deduction shall be allowed.

13.15 DEEMED INCOME CHARGEABLE TO

TAX
According to Section 59, the provisions of Section 41 (1) of the Act shall
apply in the case of Income from Other Sources in the same manner as they
apply to the income under the head Income from Business or profession.
Accordingly, where an allowance or deduction has been made in the
assessment year for any year under the head Income from other sources in
respect of loss, expenditure or trading liability incurred by the assessee and
subsequently during any previous year he has obtained, whether in cash or in
any other manner, any amount or a remission of any such liability, the
amount obtained or the value of benefit shall be deemed to be the income
under the head 'Income from Other Sources' of the previous year in which the
amount is received.

13.16 MISCELLANEOUS ILLUSTRATIONS

Format for Computing Taxable Income from Other Sources

S.No. Particulars Amount

1. Dividend
2. Interest on securities
3. Bank interest on fixed deposits
4. Casual Income(Winnings from lottery, cards
game, tips received etc)
78
 Income from
5. Income from family pension Other Sources
6. Composite rent
7. Income from subletting
8. Director’s fees or commission
9. Salaries received by member of parliament or
MLA or MLC
10. Rent from Land
11. Examination fees received by a teacher (not
from the employer)
12. Interest on employee’s contribution to an URPF
13. Interest on employee’s contribution to an URPF
14. Remuneration received for writing articles in
Journal/Magazine
15. Rental income from machinery, plant or
furniture
16. Gifts
17. Insurance Commission
18. Deemed Incomes
19. Mining rent/Royalties/Ground rent
20. Withdrawal from National Saving Schemes
21. Agricultural income from a place outside India
22. Other Incomes, if any ( to be specified)
Less: Exemption u/s 57
23. Any expenditure incurred wholly for the
purpose of earning the income is deductible
provided such expenditure is neither of capital
nature nor of personal nature.
Taxable Income from Other Sources

Illustration-9
Mr. A. furnishes the following particulars of his incomes for financial year
2022-23. Compute his gross total income for assessment year 2023-24:

Rs.
i) Dividend on equity shares 600
ii) Dividend on preference shares (gross) 3,200
iii) Income from letting on hire of building and machinery under 27,000
one composite lease
iv) Interest on Saving Bank Deposit 12,500
v) Director's sitting fees received 1,200
vi) Ground rent 600
vii) Income from undisclosed source 10,000
viii) Winning from lotteries (net) received 14,000
79
Income from Capital He claims the following deductions.
Gains & Other
Sources a) Dividend collection charges 20
b) Allowable depreciation on building and machinery 4,000
c) Fire insurance on building and machinery 100

Solution:
Computation of Gross Total Income of Mr. Afor the Assessment
Year2023-24
Income from Other Sources:

Rs.
1) Dividend on Equity Shares 600
2) Dividend on Pref. Shares 3,200
3) Income from letting on hire of building and 27,000
machinery under one composite lease
4) Interest on Bank deposits
(Rs 12,500-10,000 exemptu/s 80TTA) 2,500
5) Director's Sitting fees 1,200
6) Ground rent 600
7) Income from undisclosed source 10,000
8) Winning from lotteries received Grossed up 20,000
14,000×100¸70
61,300
Less: Depreciation on Building and Machinery 4,000
Fire Insurance on Building and 100
Machinery
Collection Charges – Not Deductible __ 4,100
Income from Other Sources being G.T.I. 61,000

Illustration-10
Mr. Shankar Lal's income particulars are as under:
i) He took a house on the rent of Rs. 1,000 per month and let it out again
for Rs. 1,600 per month. Besides, he received Rs. 5,000 rent from his
ownership house.
ii) Dividend from an Indian Company Rs. 4,000 (Gross)
iii) Speculation business profit Rs. 6,000 and Rs. 500 from cricket
gambling.
iv) Agricultural income in Sri LankaRs 10,000 was not brought in India.
Rs. 18,000 income from agricultural land situated at Kanpur.
v) Salary as an M.L.A. Rs. 30,000 and Daily Allowances Rs. 4,000.

80
 Income from
vi) Share in H.U.F. income Rs. 8,500. Other Sources
vii) Dividend received Rs. 6,000 from Co-operative Society.
Compute Income from Other Sources.
Solution:
Statement of Income from Other Sources of Mr Shankar Lal’s for AY
2023-24
1. Income from Sub-letting: Rs. Rs.
Rent received 19,200
Less: Rent Paid 12,000 7,200
2. Dividend from an Indian Company 4,000
3. Cricket Gambling +speculation business profit 6,500
4. Agricultural Income in Sri Lanka (Agricultural 10,000
income from foreign country is taxable in India)
5. Agricultural Income in Kanpur Exempt
6. Salary as M.L.A. (Daily Allowance is exempt) 30,000
7. Dividend from a Co-operative society 6,000
Income from Other Sources 63,700

Note: Agricultural income from foreign lands shall be taxable in India

Illustration-11
Mr. P's investment during the year ended 31st March, 2023consisted of the
following:
Rs.
i) 7% Government Securities 25,000
ii) 8% Agra Municipal Bonds 15,000
iii) 9% Mumbai Port Trust Bonds 20,000
iv) 7-year Post Office National Savings Certificates 10,000
v) 7% Govt. Bonds 18,000
vi) 7% National Plan Certificates 5,000
vii) 6% Securities of a Foreign Government 15,000

He paid Rs. 60 as commission for collecting the taxable interest on securities

and Rs. 1,200 as interest on loan which he had taken for the purpose of
purchasing the Mumbai Port Trust Bonds.
Find out P's Income from Other Sources.
Solution:
Computation of Income under the head'Income from Other Sources'
Of Mr. P for the Assessment Year 2023-24
Rs.
i) 7% Government Securities 1,750
ii) 8% Agra Municipal Bonds 1,200
81
Income from Capital iii) 9% Mumbai Port Trust Bonds 1,800
Gains & Other
Sources iv) 7-year Post Office National Savings 10,000
Certificates
v) 7% Govt. Bonds 1,260
vi) 7% National Plan Certificates [Exempt u/s 10 Exempt
(15)]
vii) 6% Securities of a Foreign Government 900
16,910
Less: Collection charges 60
Interest on loan 1,200 1,260
Income from other sources 15,650

Illustration-12
Vivek is a Member of Parliament from Lucknow. During the previous year
2022-23, he had the following incomes:
i) As a Member of Parliament, he received a salary of Rs. 10,000 per
month and Daily Allowance of Rs. 7,000 for attending various sessions.
ii) He held the following investments:
a) 10% Preference Shares in Daurala Sugar Factory Ltd. of the face
value of the Rs. 6,000.
b) 2,000 Equity Shares of Rs. 10 each in D.C.M. Ltd. The company
declared Interim Dividend of 10% on 15th February, 2023 but paid
it on 1st May, 2023 and declared a final dividend of 10% on 31st
March, 2023.
c) A 10% Fixed Deposit of Rs. 15,000 is held by him in State Bank of
India, Lucknow. Interest is credited annually.
iii) He won Rs. 10,000 in Crossword Puzzles.
iv) On 1stSeptember, 2022 he purchased a plot of land for constructing his
house:
On account of shortage of funds, he could not get his home constructed
and hence let out the plot at Rs. 200 p.m. from 1st November, 2022.
v) He has let machinery and furniture and building to Mr. Puneet at a
monthly rent of Rs. 6,000. He spent Rs. 2,000 on the repair of
machinery, furniture and building during the previous year.
Depreciation allowed in respect of these assets for the previous year
was Rs. 12,000.
Compute the taxable income of Mr. Vivek under the head Income from Other
Sources.

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 Income from
Solution: Other Sources
Computation of Taxable Income under the head 'Income from Other
Sources' of Mr. Vivek for the Assessment Year 2023-24

Rs. Rs.
1) Salary as Member of Parliament 1,20,000
(Rs. 10,000 p.m. for 12 months)
2) Dividend on Preference Shares 600
3) Final Dividend on Equity Shares 2,000
4) Interest on Fixed Deposit 1,500
5) Winning from Crossword Puzzles 10,000
6) Rent of land for 5 months 1,000
7) Rental income from Machinery, 72,000
Furniture & Building
Less: Repairs 2,000
Depreciation 12,000 14,000 58,000

Income from Other Sources 1,93,100

Note:
1) Daily Allowance of Members of Parliament for attending Sessions is
exempt u/s 10 (17).
Illustration-13
Dr. Komal Prasad is a Professor of Economics and is a resident in India. He
submits the following incomes for computing his income under the head
‘Income from Other Sources’ for the assessment year 2023-24.
1) He is the author of a textbook which fetched him a gross royalty income
of Rs. 50,000. He claims the following expenses regarding earning this
royalty income:
a) Salary to a clerk who collects for him necessary data and goes
through the final proof regarding Rs. 500 p.m.
b) Cost of books purchased in connection with the revision work of the
book Rs. 1,000.
c) Telephone Expenses of Rs. 1,800 attributed to the publication and
sale of his book and other matters in connection with the printing of
the new edition of the book.
2) Income from Research Papers published in ‘Taxation’ and ‘Taxman’ Rs.
4,000.
3) He lives in a rented house paying rent of Rs. 600 p.m. The house is too
big for his family. Hence, he has sub-let one-third portion of the house
on a rent of Rs. 350 per month. Komal Prasad has undertaken the
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Income from Capital liability of paying municipal taxes of Rs. 600 on the whole house and
Gains & Other
Sources
also the current repairs of the whole house amounting to Rs. 900.
4) Dr. Komal Prasad received Rs. 1,000 per lecture delivered at the.
Management Institute. During the previous year he delivered 20 lectures.
5) He is an examiner in a number of Universities, from which he got a
remuneration of Rs. 3,000.
6) His other incomes were:
i) Winnings from Card Games Rs. 8,000
ii) Received interest on Government Securities of U.K. Government
Rs. 1,500.
7) Received Rs 2,500 as dividend from acompany in which the public are
substantially interested by an account payee cheque.
Solution:
Computation of Taxable Income of Dr komal Prasad under the head
‘Income from OtherSources’for the Assessment Year 2023-24

Rs.
1. Income from Royalty Less Expenses incurred: 50,000
a) Salary to clerk 6,000
b) Cost of books purchased 1,000
c) Telephone Expenses 1,800 8,800 41,200
2. Income from Research papers published 4,000
3. Income from sub-letting:
Rent Received (350×12) 4,200
Less: Rent paid for 1/3 portion 2,400 1,800
Less: Proportionate Expenses
1/3 Municipal Taxes 200
1/3 Repairs 300 500 1,300
4. Income from Lectures 20,000
5. Income from Examinership 3,000
6. Income from Foreign Govt. Securities 1,500
7. Income from Card Games 8,000
8. Dividend – 2,500
Income from Other Sources 81,500

Note: No deduction is allowed on the royalty income of textbook.

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 Income from
Illustration-14 Other Sources
Ms. Preeti gives the following particulars of her income for the previous year
2022-23. Compute her Income from other sources

Rs.
i) Dividend on equity shares 600
ii) Dividend on preference shares (Gross) 3,000
iii) Income from letting on hire of building and machinery 25,000
under one composite lease
iv) Interest from bank deposits (Saving Bank A/c) 14,000
v) Director's sitting fees received 2,000
vi) Ground rent 1,000
vii) Income from undisclosed sources 15,000
viii) Winning from Lotteries (Gross) 10,000
The following deductions are claimed by her:
Rs.
a) Collection charges of dividend 50
b) Allowable depreciation on building and machinery 5,000
c) Fire Insurance on building and machinery 500

Solution:
Computation of Income from other sourcesof Ms. Preeti for the A.Y.
2023-24

Rs. Rs.
i) Dividend on equity shares – - 600
ii) Dividend on preference shares – - 3,000
iii) Income from letting on hire of building and 25,000
machinery
Less: a) Depreciation on building and 5,000
machinery
b) Fire Insurance of building and 500 19,500
machinery
iv) Interest from bank deposits (Saving Bank A/c) 4,000
v) Director sitting fees 2,000
vi) Ground rent 1,000
vii) Income from undisclosed sources 15,000
viii) Winning from Lotteries 10,000
Income from other sources 55,100

Note: Interest income upto Rs. 10,000 is exempt in case of saving bank A/c
interest.

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Income from Capital Illustration-15
Gains & Other
Sources a) Mr. X whose property was compulsorily acquired in 2017 received
enhanced compensation of Rs. 8,00,000 on 10.12.2022 which includes
Rs. 2,00,000 as interest on such enhanced compensation. What will be
the taxability of such compensation?
b) Mr. P took a loan of Rs. 48,000 on 04.06.2022 from a bank @ 10% per
annum and invested the amount in shares of a non-domestic company.
During the previous year, no dividends were received from the company,
however, Mr. P claimed that the interest paid to the bank must be
allowed as deduction. It his claim maintainable.
Solution:
i) Enhanced compensation of Rs. 8,00,000 – Rs. 2,00,000 = Rs. 6,00,000 is
taxable under the head capital gains.
ii) Interest on enhanced compensation is taxable under the head 'Income
from other sources' as under:

Rs.
Interest on Enhanced Compensation Received 2,00,000
Less: Deduction @ 50% 1,00,000
Taxable Interest 1,00,000

b) Interest on loan taken to purchase shares shall be allowed as deduction

even if the shares could not yield any income by way of dividend.
Illustration-16
Mr. Prasoon made the following investments. Compute his income under the
head 'Income from other sources'. Also state T.D.S mode thereon.
a) 2500, 12% debentures of Rs. 100 each of IDBI purchased on
01.01.2023directly from IDBI, due date of interest is March 31, every
year.
b) Purchased 200, 12% debentures of IDBI (face value Rs. 1,000), on
01.07.2022 from market @ Rs. 1,050 each. Due date of interest is March
31st. Every year these debentures were issued in 2015.
c) 300, 14% debentures of R.P. Ltd, listed in stock exchange, purchased
from the brokerat Rs. 100 each on 31.10.2022. Due dates of interest are
June 30 and December 31, every year.
d) Purchased 100, 12% debentures of A.M. Ltd. @ 100 each by directly
subscribing to the company. Date of issue being 31.10.2022. Interest due
on June 30 and December 31, every year.
e) 1000 shares (Face value Rs. 10 each) of TPLtd. purchased on 15.06.2022
from market @ Rs. 60 per share. The company declared a dividend @
20% on 30.09.2022.

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 Income from
Solution: Other Sources
Computation of Income from Other Sources of Mr. Prasoon for
Assessment Year 2023-24
T.D.S. Income
Rs. Rs.
a) 3 months interest on 12% debenture of 750 7,500
IDBI purchased directly
b) Interest on 12% debenture of IDBI 2400 24,000
purchased from market
c) Interest on debentures of RP Ltd. for 6 Nil 2,100
months.
d) Interest on 12% debentures of A.M. Ltd. Nil 600
e) Dividend from T.P. Ltd. (Dividend Nil 2,000
received from Domestic company is
exempt)
Total Income from Other Sources 36,200

Note:
If shares are purchased from market, the holder of the shares or debentures
will get the full amount of interest or dividend on the face value of their
holding of any dividend or interest declared after the date of his holding.
However, the holder will get interest/ dividend only for the period of his
holding in case of directly purchased shares from company (Original Issue).

13.17 LET US SUM UP

Any income which is to be included in total income but does not find place
under any other head of income, is taxable under the head 'Income from,
Other Sources'. It includes dividends, income from winnings from lotteries,
crossword puzzles, horse races, card games or betting etc., interest on
securities, income from letting of machinery, plant or furniture which is not
chargeable as business income, etc.
In case of dividends or interest on securities, any commission paid to a
banker or any other person for collecting the dividends or interest on behalf
of the assessee is deductible from such income.
In case of income from letting of machinery, plant or furniture alongwith
letting of buildings, which is chargeable under the head ‘Other Sources’
deduction in respect of repairs, insurance premium and depreciation of
buildings, machinery; plant or furniture shall be allowed.
In the case of income from family pension received by the widows or heirs of
deceased employee, deduction of sum equal to 33.3% of such income or Rs.
15,000, whichever is less, is to be allowed.
Any other revenue expenditure incurred wholly and exclusively for the
purpose of earning such income is allowed. Dividends are classified mainly
into two types-Final Dividend and Interim Dividend. Final dividend is
87
Income from Capital deemed to be the income of the previous year in which it is declared an
Gains & Other
Sources
interim dividend is deemed to be the income of the year in which it is
released for payment.
Interest on Securities: Any security issued by the Central or State
Government or local authority or any company or statutory corporation is a
security for this purpose. Any interest earned on such securities is taxable
under the head ‘Other Sources’, generally, on due basis. Interest on securities
is deemed to be due on the due date of interest and does not accrue from day
to day. Securities can be Government Securities and Commercial Securities.
The deductions permissible from interest income include: (i) bank
commission for collecting interest and (ii) interest on loan taken to purchase
the securities.

13.18 KEY WORDS

Bondwashing Transactions: When securities are sold near the due date of
interest to some friend or relative with an intention to buy back after the due
date of interest, it is a bogus transaction, as it is a method to avoid tax. Such
transactions are called Bondwashing Transactions.
Dividends: It is the sum paid to or received by a shareholder proportionate to
his shareholding in a company out of the total sum distributed.
Interest on Securities: Interest on Securities means interest on any security
of the Central or State Government or interest on debentures issued by a local
authority or a company or a Statutory Corporation. Interest is given either
half yearly or annually.
Tax-free Commercial Securities: These are issued by a company or some
other business institution. Their interest is not tax-free but the tax on this is
paid by the business institution concerned on behalf of the debenture holder
over and above the interest, which is fully paid to the debenture holder.

13.19 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress A

1) i) True; ii) False; iii) False; iv) True.

2) i) Casual Income from other sources.
ii) 30% iii) not allowed as deduction, iv) Taxable
Check Your Progress B

1) i) Debenture, bond ii) due; iii) accrue from day to day

iv) Entire, buyer; v) genuine, to avoid tax;
vi) Other sources.
2) i) False, ii) False, iii) False, iv) False, v) True, vi) True,
vii) True

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 Income from
13.20 TERMINAL QUESTIONS/EXERCISES Other Sources

1) Explain clearly the meaning of the term ‘Dividend’ as defined in the

Indian Income-Tax Act and point out the law relating to taxation of
dividends.
2) Discuss the various kinds of Securities? Explain the rule regarding
grossing up of interest on Commercial Securities.
3) Explain Bondwashing Transactions? How is tax avoided through such
transactions?
4) From the following particulars submitted by Shri Ram Kapoor, compute
his income from other sources for the A.Y. 2023-24.
i) As Director of X Co. Ltd., he received Rs. 12,000 p.m. as salary and
Rs. 1,200 p.m. as Entertainment Allowance. The company provides
him a car for both official and personal use. The personal use is
estimated to be 50%. The company incurs an expenditure of Rs.
16,000 on running and maintenance of the car (for both official and
personal use) and depreciation of the car may be taken asRs. 14,000.
ii) He was also a director in another company from which he received
Rs. 13,000 as director’s fees.
iii) Interest received on deposits with a Co-operative Bank Ltd. Rs.
2,000.
iv) Dividends received from a foreign company Rs. 6,000.
v) Received winnings from lottery Rs. 24,500.
vi) Income from agriculture in England Rs. 78,000.
vii) Honorarium for delivering lectures in a registered society Rs. 1,200.
[Answer: Rs. 1,35,200]
Hint:
i. Salary and Entertainment Allowance is taxable under the head salary.
ii. Salary and other perquisitesare allowed when he is the director of
another company.
iii. Lottery is fully taxable under this head.
5) Mr. Tarun, a resident individual submits the following particulars of his
income for the year ended 31st March, 2023.
i) Royalty from coal in Rs. 20,000.
ii) Agricultural income in Sri Lanka Rs. 15,000.
iii) Salary for a part-time job with a firm Rs. 21,000.
iv) Salary as Member of Parliament Rs. 36,000.
v) Daily Allowance as M.P. Rs. 15,000.
vi) His residential house has been taken on a rent of Rs. 1,000 p.m.,
half of which he has sub-let at Rs. 1,200 p.m.
89
Income from Capital vii) Dividend received from a Cooperative society Rs. 5,000.
Gains & Other
Sources viii) He has incurred the following expenses:
a) Paid collection charges Rs. 100 for collecting dividends.
b) Rs. 3,000 spent for earning and collecting royalty income.
Compute Mr. Tarun’s income from other sources for the assessment year
2023-24.
[Answer: Rs. 81,300]
6) Sri Mangal Singh is a Political Leader. The particulars of his income for
the F.Y. 2022-23 are as follows:
i) Received Rs. 12,000 for delivering lectures in favor of a
candidate in Municipal Election.
ii) Received a sum of Rs. 2,000 for delivering lectures in favor of
another candidate in Municipal Election.
iii) Received a sum of Rs. 3,000 as Royalty from Friends &
Company to whom he has given right to publish his books on
Political Science.
iv) He has some machines which he gives on rent. The rent received
in this respect amounts Rs. 15,500. Repair charges on machines
are Rs. 1,000.
v) Received Rs. 5,600 as rent of agricultural land given to a kiln
contractor for the kiln.
vi) Interest received on Post-office savings bank account Rs. 800.
vii) Remuneration received for radio talk Rs. 1,000.
Compute his taxable income under the head 'Income from other sources' for
the Assessment Year 2023-24.
[Answer: Rs. 34,100]
7) Following are the particulars of income of Smt. Komal.

Rs.
i) Interest received on Government Securities 9,000
ii) Dividend received from a Foreign Company 8,000
iii) Amount received from winnings of lottery 66,500
iv) Winning from wager 25,000
v) Income from letting on hire the private car (Letting on 40,000
hire of car is not the business of Smt. Komal)
vi) Family pension (per month) 1,500

She incurred the following expenditures:

i) Interest paid on loan taken to purchase shares and securities Rs. 7,000

90
 Income from
ii) Bank commission paid @ 2% for collecting dividend and interests. Other Sources
iii) Spent Rs. 1,500 on purchasing lottery tickets.
iv) Expenses of the private car for the period during which it was let out
Rs. 12,000 (including depreciation).
Compute the income of Smt. Komal under the head 'Income from Other
Sources' for the assessment year 2023-24.
[Answer: Rs. 1, 69,660]

Note: These questions and illustrations are helpful to understand this

unit. Do efforts for writing the answer to these questions but do not
send your answers to university. It is only for your practice.

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