GOPALDAS JHAMATMAL ADVANI LAW COLLEGE

BANDRA WEST, MUMBAI 400 050.

ASSIGNMENT ON
Name of Topic : Income From Other Sources

BY

Name of Student : Surendrasingh B. Zala

SYLLB Division : B Roll No : 107

Name of Subject : Taxation Law

SEMESTER IV

Name of Professor : Prof. Nimesh Chothani

UNIVERSITY OF MUMBAI
ACADEMIC YEAR : 2021-2022
INTRODUCTION :

 The Income Tax Act 1961 lists ‘Income from Other Sources’ as one of the five heads of incomes,
subject to taxation. Income From Other Sources essentially includes all receipts of earnings that
otherwise cannot be classified under any remaining heads of income.

 Understanding the head of Income from Other Sources is residuary in nature. It includes incomes
which are not taxable in other heads of income.

 Income from Other Sources is one of the heads of income chargeable to tax under the Income tax Act.
1961. Any income that is not covered in the other four heads of income is taxable under income from
other sources, because of this, it is known as residuary head of income.

 All the incomes excluded from salary, capital gains, house property or business & profession (PGBP)
are included in IFOS, except those which are exempt under the Income Tax Act.

 Under Section 56 of the Act, the following three conditions must be satisfied for a receipt of earning
to come under the ‘income from other sources’ head –
1. You have an income
2. Such income is not tax-exempt under any other Sections of the Income Tax Act 1961
3. Such income cannot be categorized as salary, profits, and gains from business or profession, income
from house property, or capital gains
Income from other sources is a category under the Income Tax in which we can consider all the different
sources of income which does not fall under other heads as Income from salary or House property or
Capital Gains or Business / profession.

What does ‘Income from Other Sources’ include?

The following types of receipts of income fall under the Income from Other Sources’ category –
1. Dividends
The term dividend is defined in Section 2(22).Dividends are taxable under ‘income from other sources,’
based on the residential status of the source company that paid out the dividend. Dividend is taxable u/s
56 whether it is paid in cash or in kind & whether such shares are held by the assessee as investment or
stock – in –trade

i) 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%. Deemed Dividend declared by a domestic company is taxable in the hands of
the receipient.

ii) Dividend from a foreign company

Dividends received from any foreign company are subject to taxation under ‘Income from Other Sources.’
 2. One-time income

• One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games,
gambling or betting of any form are categorized under ‘Income from Other Sources.’ Gross Earning
from these sources are chargeable to tax under the head “ Income from other sources ”without making
any deduction in respect of expenses.

• No deduction u/s 57 is permissible as provided in section 58(4).

• However, there are 2 exception to this rule which are mentioned below :-
Exception – 1 A race horse owner is entitled to deduction in respect of expenditure incurred by him for
maintaining the horses.
Exception – 2 Deduction is permissible for diversion by overriding title.
For Example, if assessee forgoes a certain % of lottery income in favour of the Government or to the
concern Agency according to the terms, the amount so forgone shall be deducted.
Tax Rates - Section 115BB provides that income from the sais sources shall be chargeable to tax @
30%.

3. Interest on compensation

Interest received by you (as assesse) on the amount of reimbursement or compensation paid out in
situations such as compulsory acquisition is subject to taxation under ‘Income from Other Sources’
head.

4. Gifts

Gifts received in the form of any sum of money, movable or immovable property, are also taxable.
Then, there are the following receipts of income, which can only be classified under ‘Income from Other
Sources’ if they are not chargeable as ‘Profits and Gains of Profession or Business’ –
• Employees’ contribution to any welfare scheme
• Interest on securities such as debentures or government bonds
• Rental income received from letting out the plant, furniture, or machinery owned by the assessee
• Rental income received from letting out the plant, furniture, or machinery along with a building
(here, these two cases of letting out are inseparable)
• Receipts of income under a Keyman Insurance Policy

 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 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

5.Income by way of letting on hire of machinery.

• Such income is chargeable to tax under the head “Income from other sources” if not chargeable to tax
under the head “Profits & Gains of Business or Profession “
 Any sum of Money or Value of Property received without consideration or for inadequate
consideration to be subject to tax in the hands of the recipient [ i.e. Taxability of Gift , section
56(2)(X)]

i. In order to prevent the practice of receiving sum of money or the property without consideration or for
inadequate consideration, sec 56(2)(x) brings to tax any sum of money or the value of any property
received by any person without consideration or the value of any property received for inadequate
consideration.

ii. Sum of Money – If any sum of money is received without consideration & the aggregate value of
which exceeds Rs. 50,000, the whole of the aggregate value of such sum is chargeable to tax.
iii. Immovable property [ Land or building or both]

I. If an immovable property is received :

a) Without Consideration – The stamp Duty value of such property would be taxed as the income of the
recipient if it exceeds Rs. 50,000.

b) For Inadequate consideration – If Consideration is less than the stamp duty value of the property &
the difference between the stamp duty value & consideration is more than the higher of –
(i) Rs. 50,000
(ii) 5% of Consideration

The difference between the stamp duty value & the consideration shall be chargeable to tax in the hands
of the assessee as “ Income from other sources”

II. Value to be considered where the date of agreement is different from the date of registration :

 Taking into consideration the possible time gap between the date of agreement & the date of
registration, the stamp duty value may be taken as on the date of agreement instead of the date of
registration.

III. If the stamp duty value of immovable property is disputed by the assessee :

 The Assessing officer may refer the valuation of such property to a valuation officer , If such
valuation is less than the stamp duty value.

IV. Movable Property

 If an movable property is received

a) Without Consideration – The aggregate Fair Market value of such property on the date of receipt
would be taxed as the income of the recipient, if it exceeds Rs. 50,000.

b) For Inadequate consideration – If the difference between the aggregate Fair Market value & such
consideration exceeds Rs. 50,000, such difference would be taxed as the income of the recipient.
 V. Non – applicability of Section 56(2)(X)
 Any sum of money or value of property received , in the following circumstances would be
outside the ambit of sec. 56(2)(x)
• From any relative
• On the occasion of the marriage of the individual
• Under a will or by way of inheritance, or
• In contemplation of death of the payer or donor as the case may be, or
• From any local authority
• From such class of persons & subject to such conditions as may be prescribed.

 Meaning of relative –
For the purpose of section 56(2)(x) , relative means-

(i) In case of an individual ---

(a) Spouse of the Individual
(b) Brother or sister of the Individual
(c) Brother or sister of the spouse of the individual
(d) Brother or sister of either of the parents of the individual.
(e) Any lineal ascendant or descendant of the individual.
(f) Any lineal ascendant or descendant of the spouse of the individual.

(ii) In case of HUF, any member thereof.

 Admissible deduction [ sec 57]:

For computation of Taxable income under this head , the following deduction are to be made :

1. In case of Dividend ( other than u/s 115 – O) or interest on securities

- Any reasonable sum paid by way of commission or remuneration to a banker or any other person.

2. Income consists of recovery from employees as contribution to any PF. Superannuation fund etc.
- Amount of contribution remitted before the due date under the respective Acts, in accordance with the
provision of section 36(1)(va)

3. Income from letting on hire of machinery , Plant & furniture

- Current Repairs to the machinery , Plant & furniture - Insurance Premium - Depreciation / Unabsorbed
Depreciation.

4. Family Pension-
- 1/3 rd of such income or Rs. 15,000 whichever is less.

5. Interest on Compensation / enhanced Compensation received –

- 50% of such interest 6. Any other expenditure not in the nature of capital expenditure incurred wholly
& exclusively for earning such income.

Examples of receipts that are chargeable Under ‘Income from Other Sources’

The following are some of the examples of other receipts of income that automatically fall under the
‘Income from Other Sources’ category –
• Income received from subletting a house property by a tenant
• Insurance commissions received by you (i.e., assesse)
• Casual income
• Family pension payments received by the lawful heirs of dead employees
• Interest earned on deposits with companies and bank deposits
• Interest on loans
• Remuneration received by the Members of Parliament (MP)
• Rental income earned from a vacant plot of land
• Agricultural income received from an agricultural land situated outside of India
• Interest paid out by the Government on excess payment of advance tax
• Interest on Securities
• Income by way of letting on hire of machinery, Plant or Furniture.
• Any sum received from employee as contribution towards staff welfare scheme.
• Any sum received under Keyman Insurance Policy.
• Any sum of Money or Value of Property received without consideration or for inadequate
consideration to be subject to tax in the hands of the recipient [ i.e. Taxability of Gift , section
56(2)(X)]
• Interest on loan /Debenture
• Director’s sitting Fees
• Agricultural Income outside India.
• Remuneration received by the Members of Parliament.
• Insurance Commission
• Remuneration received by a teacher for acting as an examiner.
• Compensation or Other Payment.
• Interest on Bank deposits.
• Interest on undisclosed sources.
• Gratuity received by a director.
• Family Pension.
Apart from the incomes as mentioned above, there are some incomes which may
chargeable under the heads income from other sources.
  Deductions under Section 57

The following expenditures are subject to tax deductions under the ‘Income from Other Sources’
category:

Section Nature of Income Deductions allowed

57(i) Dividend or interest earned on securities Any reasonable sum paid as commission or
remuneration to a banker or any other person to
realize interest or dividend on securities

57(ia) Employee’s contribution towards Provident Fund In case the employees’ contribution is credited to
(PF), Superannuation Fund (SF), or ESI Fund their respective accounts in relevant fund before
setup for employees’ welfare or on the due date

57(ii) Rental income received from letting of plant, Rent, taxes, rates, repairs, depreciation and
furniture, machinery or building insurance, etc

57(iia) Family Pension One-third of the family pension, subject to a

maximum of Rs. 15,000

57(iii) Any other income Any other expenditure (apart from capital
expenditure) expended exclusively and wholly for
earning such income

57 (iv) Interest on the compensation or enhanced 50% of such interest received (subject to specific
compensation conditions)

58(4) Income from any activity of maintaining or All expenditures relating to such activity
Proviso owning race horses
 Section 58 : Tax Deduction That Cannot Be Claimed Under the Head ‘Income
from Other Sources’

Expenses not deductible :

Section Nature of Income

58(1)(a)(i) Personal expenses

58(1)(a)(ii) Interest subject to tax, which is payable outside India (there has been no previous tax
deduction on this interest)

58(1)(a)(iii) Taxable amount paid under the category ’salaries’ and payable outside India taxes
have not been paid or deducted at source

58(1A) Sum paid towards Wealth Tax that is not deductible

58(2) Amount of Expenditures as specified in section 40A

58(4) Expenditure associated with winnings from lotteries, races, crossword puzzles,
games, gambling, or betting
 SET OFF AND CARRY FORWARD OF LOSS UNDER THE INCOME-TAX ACT

Profit and losses are two sides of a coin. Losses, of course, are hard to digest. However,
the Income-tax law in India does provide taxpayers some benefits of incurring losses too. The law contains
provisions for set-off and carry forward of losses which are discussed in detail in this article.
 Set off of losses

 Set off of losses means adjusting the losses against the profit or income of that particular year. Losses
that are not set off against income in the same year can be carried forward to the subsequent years for
set off against income of those years. A set-off could be an intra-head set-off or an inter-head set-off.

 Intra-head Set Off

 The losses from one source of income can be set off against income from another source under the same
head of income.
For Eg : Loss from Business A can be set off against profit from Business B, where Business A is one
source and Business B is another source and the common head of income is “Business”.

 Exceptions to an intra-head set off:

 Losses from a Speculative business will only be set off against the profit of the speculative business.
One cannot adjust the losses of speculative business with the income from any other business or
profession.
 Loss from an activity of owning and maintaining race-horses will be set off only against the profit from
an activity of owning and maintaining race-horses.
 Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term
capital loss can be set off against both long-term capital gains and short-term capital gain.

 Inter-head Set Off

After the intra-head adjustments, the taxpayers can set off remaining losses against income from other
heads.
Eg. Loss from house property can be set off against salary income.
Given below are few more such instances of an inter-head set off of losses
Loss from House property can be set off against income under any head
Business loss other than speculative business can be set off against any head of income except income
from salary.
One needs to also note that the following losses can’t be set off against any other head of income:
a. Speculative Business loss
b. Specified business loss
c. Capital Losses
d. Losses from an activity of owning and maintaining race-horses
 BIBLIOGRAPHY

1. https://www.icicibank.com/knowledge-base/tax/income-from-
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2. https://www.canarahsbclife.com/faqs/tax-saving/how-is-
income-from-other-sources-taxed-in-india.html

3. https://economictimes.indiatimes.com/wealth/tax/what-is-
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