Income from Other Sources

Adv. Dr. Chitra K.Deshpande

BASIS OF CHARGE (SEC 56)
• Income from Other Sources is the last and residual head of Income.
Sub-section (1) of Section 56 covers any Income which does not fall
under any other head of income.
• However sec 56(2) specifies 11 incomes which are always taxable
under the head “Income from Other Sources”.

Adv. Dr. Chitra K. Deshpande

Special Provisions
• The following Eleven Incomes are always taxable under the head
“Income from Other Sources”.
• 1. Dividend
• 2. Winning from Lotteries, etc.
• 3. Employees contribution to Wards staff welfare scheme.
• 4. Interest on Securities
• 5. Rental Income of Machinery, Plant or Furniture.
• 6. Rental Income of Letting out of Plant, Machinery, or Furniture along
with letting out of building and the two letting are not separable.
Adv. Dr. Chitra K. Deshpande
Special Provisions
• 7. Sum received under Keyman Insurance Policy
• 8. Gift.
• 9. Interest on compensation or enhanced compensation
• 10. Advance Money received in the course of regulation for transfer of
a capital asset.
• 11. Compensation on termination of employment or modification of
terms of employment.

Adv. Dr. Chitra K. Deshpande

Incomes which are charged to tax under
the head ‘Income from other sources’
• ‘Income from other sources’ is the residual head of income. Hence, any
income which is not specifically taxed under any other head of income
will be taxed under this head.
• Further, there are certain incomes which are always taxed under this
head. These incomes are as follows:
• As per section 56(2)(i), dividends are always taxed under this head.
However, dividends from domestic company other than those covered by
section 2(22)(e) are chargeable to tax in accordance with the provisions
of section 115BBDA. As per Section 115BBDA, Dividend received from
Domestic Companies upto Rs 10 Lacs will be exempt from Tax and then
any amount received above 10 lacs will be tax at 10%.
Adv. Dr. Chitra K. Deshpande
certain incomes which are always taxed under
this head…. Continued…
• Winnings from lotteries, crossword puzzles, races including horse races, card
game and other game of any sort, gambling or betting of any form
whatsoever, are always taxed under this head.
• Income by way of interest received on compensation or on enhanced
compensation shall be chargeable to tax under the head “Income from other
sources”, and such income shall be deemed to be the income of the year in
which it is received, irrespective of the method of accounting followed by the
However, a deduction of a sum equal to 50% of such income shall be allowed
from such income. Apart from this, no other deduction shall be allowed from
such an income.
• Gifts received by an individual or HUF (which are chargeable to tax) are also
taxed under this head.
Adv. Dr. Chitra K. Deshpande
• In addition to above, following incomes are charged to tax under this
head, if not taxed under the head “Profits and gains of business or
profession”.
• Any contribution to a fund for welfare of employees received by the [Section
56(2)(ic)].
• Income by way of interest on securities. [Section 56(2)(id)].
• Income from letting out or hiring of plant, machinery or furniture. [Section
56(2)(ii)].
• Income from letting out of plant, machinery or furniture along with building;
both the lettings are inseparable. [Section 56(2)(iii)].
• Any sum received under a Keyman Insurance Policy including bonus. [Section
56(2) (iv)].

Adv. Dr. Chitra K. Deshpande

Relevance of method of accounting
• Income chargeable to tax under the head “Income from other
sources” is to be computed in accordance with the method of
accounting regularly employed by the assessee.
• Hence, if the assessee follows mercantile system, then income will be
computed on accrual basis. If assessee follows cash system, then
income will be computed on cash basis.
• However, method of accounting does not affect the basis of charge in
case of dividend income and income by way of interest received on
compensation or on enhanced compensation.

Adv. Dr. Chitra K. Deshpande

 Expenses allowed as deductions while computing
income chargeable to tax under the head
“Income from other sources”
• Following major deductions are available from income chargeable to tax under the
head “Income from other sources” :
• (a) Commission or remuneration for realising dividends (if not covered under section
115-O which is exempt) or interest on securities [Section 57(i)].
• (b) Any sum received by an employer from employees as contribution towards any
welfare fund of such employees is first included as income of the employee, and if the
employer credits such sum to the employee’s account under the relevant fund on or
before the due date (of such fund), then such amount (i.e., employee’s contribution)
is deductible from the income of the employer [Section 57(ia)].
• (c) Current (not capital) repairs, insurance premium and depreciation in respect of
plant, machinery, furniture and buildings are deductible from rent income earned by
letting out of plant, machinery, furniture and building, which are chargeable to tax
under section 56(2)(ii)/(iii).
Adv. Dr. Chitra K. Deshpande
Expenses allowed as deductions…..
Continued..
• (d) A deduction of lower of Rs. 15,000 or 33 1/3% of such income is
available in case of income in the nature of family pension (i.e.,
regular monthly amount payable by the employer to the family
members of the deceased employee) [Section 57(iia)].
• (e) Under section 57(iii), deduction is available in respect of any other
expenditure (not being in the nature of capital expenditure) laid out
or expended wholly and exclusively for the purpose of making or
earning such income during the relevant previous year.

Adv. Dr. Chitra K. Deshpande

Expenses not allowed as deductions
• Under section 58, following expenditures are not deductible while
computing income chargeable to tax under the head “Income from other
sources” :
• Personal expenditure [Section 58(1)(a)(i)].
• Any interest chargeable under the Act which is payable outside India on
which tax has not been paid or deducted at source [Section 58(1)(a)(ii)].
• Any amount paid which is taxable under the head “Salaries” and payable
outside India on which tax has not been paid or deducted at source [Section
58(1) (a) (iii)].
• Sum paid on account of wealth-tax is not deductible under section 58(1A).
• Amount specified under section 40A is not deductible [Section 58(2)].
Adv. Dr. Chitra K. Deshpande
Practical Question on Other Sources
• 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

Adv. Dr. Chitra K. Deshpande

Solution :
• Deemed dividend (Accumulated profit) is exempt 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)

Adv. Dr. Chitra K. Deshpande

Question 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.

Adv. Dr. Chitra K. Deshpande

Solution for Q-2
• Amount Received by Mr. Satish @ Rs. 1 on 500 shares = Rs. 500
Amount Received from accumulated profit =
• Accumulated Profit x No of shares held/ Total number of shares
• = 12000x500/20000= Rs. 300
• 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.

Adv. Dr. Chitra K. Deshpande

Question 3
• Mr. Zubin holds 500 shares (equity) of Rs. 10 each in K.K. Ltd which is
an Indian Company. On March 31, 2021, 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 shares.

Adv. Dr. Chitra K. Deshpande

Solution Q-3
• 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
2022-23.
• But, dividend from an Indian Company is exempt u/s 10 (34). Hence,
Company shall not pay the tax on such dividend.
• ii) Bonus shares received by Mr. Zubin are also not taxable as they are
issued to equity shareholders.
• For equity shareholders, Bonus is not regarded as dividend.

Adv. Dr. Chitra K. Deshpande

Question 4
• Mr Utkarsh gives you the following information regarding his incomes
for A.Y. 2022-23. Rs.
• (a) Income under the head salary (computed) 5,50,000
• (b) Income from House Property 3,50,000
• (c) Dividend from Domestic Company 12,00,000
• Compute Tax Payable by Mr Utkarsh for AY 2022-23.

Adv. Dr. Chitra K. Deshpande

Solution 4:
• Computation of Total Income and Tax of Mr Utkarsh for A.Y. 2022-23 .
• (a) Income from Salary 5,50,000
• (b) Income from House Property 3,50,000
• (c) Income from other sources :
• Income from Capital Gains & Other Sources
• Dividend from Domestic Company 12,00,000
• Less: Exemption u/s 10 (34) 10,00,000
• Taxable 2,00,000
• Total Taxable Income (5,50,000 + 3,50,000 + 2,00,000) = 11,00,000
Adv. Dr. Chitra K. Deshpande
Tax Computation Q-4
• Tax payable
• (a) Tax on Dividend 2,00,000× 10% 20,000
• (b) Tax on Bal. Income of Rs. 9,00,000
• (i) First Rs. 2,50,000 Nil
• (ii) Next Rs. 2,50,000 @ 5% 12,500
• (iii) On Balance Rs. 4,00,000 @ 20% 80,000
• 92,500
• Total Tax 1,12,500
• Add: Health and Education Cess @ 4% 4,500
• Tax Payable 1,17,000
Adv. Dr. Chitra K. Deshpande
Question 5
• Compute income from the other sources of Mr Anupam for
• A.Y. 2022-23. 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 66,500
• v) Winning from T.V. show (Gross) 50,000

Adv. Dr. Chitra K. Deshpande

Solution 5
• Computation of Income from other sources of Mr Anupam for AY
2022-23 Rs.
• i. Winning from horse race 10,000
• ii. Winning from wager 25,000
• iii. Lottery (grossed up)
• Rs 66,500 ×100/ 100 – 30 95,000
• iv. Winning from TV show 50,000
• Income from other sources 1,80,000

Adv. Dr. Chitra K. Deshpande

Question 6
• The investments of Jitendra on 1st April 2021 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 less tax Government Securities.
• The Bank commission for collecting interest is Rs. 99. Interest on securities being
payable in each case on 1st January and 1st July. Find out income from other
sources’ for the assessment year 2022-23
Adv. Dr. Chitra K. Deshpande
Solution 6
• Computation of Income from Other Sources of Mr. Jitendra for A.Y. 2022-23 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 grossed up) 2,000
• iv) Interest on foreign government securities
(Not to be grossed up) 900
• 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
Adv. Dr. Chitra K. Deshpande