According to the Income Tax Act, there are five heads of income, with “Income from Other Sources” being the fifth. Income falling under this category must meet three conditions outlined in Section 56 of the Act to qualify as income from other sources. The section also provides a list of taxable incomes under this head, including dividends, one-time incomes, interest on compensation, certain gifts, shares received by a firm, and more. Additionally, it details the criteria for the taxation of certain receipts that fall under income from other sources. The content also discusses the deductions and expenditures allowed under Section 57, as well as sums not allowed as deductions while computing taxable income under Section 58.
The content also addresses common queries related to income tax, such as the five sources of income, taxation of income from other sources, the taxation of pensions, tax on gifts received on different occasions, and the applicable tax if the value of a gift exceeds Rs. 50,000.
There are five heads of income listed in the Income Tax Act, the fifth of which is Income from Other Sources.
Any income that is not eligible for tax under any other head of income and cannot be excluded from the total income is taxed as residual income under the head “Income from Other Sources”.
How do you classify income from other sources?
The following three conditions must be satisfied according to Section 56 of the Income Tax Act for an income to qualify as income from other sources.
- Income is generated.
- Any other provision of the Income Tax Act does not exempt such income.
- Income from such sources cannot be claimed as salary, house property income, profits and gains from business or profession, or capital gains.
Section 56- Table Incomes under ‘Income from Other Sources’
Here’s a list of taxable income under the head “Income from other sources”:
- DividendsDepending on the company’s residential status, dividends are subject to taxation as income from other sources.
- Dividend from an Indian company: The dividend is tax-free if the company has paid Dividend Distribution Tax. Under section 115BBDA of the income tax act, however, if an individual/HUF/firm receives dividends from Indian companies that exceed ₹ 10 lakh, the excess is taxable at 10%.
- Dividend from a foreign company: Dividends received from foreign companies are taxed as income from other sources.
- One-time IncomeA one-time income such as winnings from lotteries, crossword puzzles, horse races, card games, or betting of any kind is considered income from other sources.
- Interest on compensationIn situations like compulsory acquisition, taxpayers may be taxed on interest received on compensation or reimbursements received.
- GiftsGifts such as any sum of money and movable or immovable property that’s received without consideration which exceeds ₹50,000 are taxable.However, any sum of money or value of property received, in the following circumstances would be tax free:
- 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, as the case may be; or
- From any local authority; or
- From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution; or
- From or by any trust or institution registered; or
- By any fund or trust or institution or any university or other educational institution or any hospital or other medical institution.
- By way of transaction not regarded as transfer under section 47(i)/(iv)/(v)/(vi)/(vib)/(vid)/(vii).
- immovable property being land or building or both,
- shares and securities,
- jewelry,
- archaeological collections,
- drawings,
- paintings,
- sculptures,
- any work of art or
- Bullion (bars of gold or silver)
- spouse of the individual;
- brother or sister of the individual;
- brother or sister of the spouse of the individual;
- brother or sister of either of the parents of the individual;
- any lineal ascendant or descendant of the individual;
- any lineal ascendant or descendant of the spouse of the individual;
- spouse of any of the persons referred in (1) to (6) above.
- Shares received by a firmWhen shares of a closely held company are received by a firm or another closely held company without consideration or for inadequate consideration, the aggregate fair market value of those shares, decreased by the consideration paid, if any, shall be taxed.Note: Nothing will be taxed if the taxable amount does not exceed ₹ 50,000.
- Money or movable/immovable property receivedReceived money or movable/immovable property without consideration or with inadequate consideration in the previous year.
- CompensationWhen a person receives compensation in connection with the termination of his employment or the modification of his terms and conditions.
- Under this head, money received as an advance or otherwise in the course of negotiations for the transfer of a capital asset will be taxed, if:
- This amount is forfeited; and
- As a result of the negotiations, the capital asset is not transferred.
The following receipts are classified as income from other sources only if they’re not chargeable as “profits and gains of business or profession.”
- Employees’ contribution to welfare schemes
- Interest on securities like government bonds or debentures
- Rental income from letting out plant, machinery, or furniture owned by the assessee
- Rental income from letting out plant, machinery, or furniture, along with a building, where these two cases of letting out are inseparable
- Receipts under Keyman Insurance Policy
Examples of Incomes Chargeable as ‘Income from Other Sources’
Here are some examples of other receipts that automatically fall under this category.
- Income from subletting of a house property by a tenant
- Casual income
- Insurance commissions received by the assessee
- Family pension payments received by the legal heirs of dead employees
- Interest on bank deposits and deposits with companies
- Interest on loans given
- Remuneration received by Members of Parliament
- Rent earned from a vacant plot of land
- Agricultural income from agricultural land situated outside India
- Interest paid by the Government on excess payment of advance tax
Section 57- Expenditures allowed as deductions
The following expenses are allowable as deductions from income chargeable to tax under ‘Income from Other Sources’:
| Section | Nature of Income | Deductions allowed |
|---|---|---|
| 57(i) | Interest or dividends on securities | For the purpose of realizing dividends or interest on securities, any commission or remuneration paid to a banker or any other person. |
| 57(ia) | Contribution of employees to Provident Fund, Superannuation Fund, ESI Fund, and any other fund that is established for their welfare | On or before the due date, employees’ contributions will be credited to their accounts in the relevant fund |
| 57(ii) | Plant, machinery, furniture, or buildings rented for rental income | Rates, taxes, insurance, repairs, depreciation, etc. |
| 57(iia) | Family Pension | 1/3rd of such income or Rs. 15,000 whichever is less |
| 57(iii) | Any other income | Other expenditures (other than capital expenditures) incurred wholly and exclusively for earning such income |
| 57 (iv) | Interest on compensation or enhanced compensation | 50 percent of such interest (subject to certain conditions) |
| 58(4) | Race horse ownership and maintenance income. | Expenditures related to such activities. |
Section 58- Sum not allowed as deductions while computing taxable income
| Section | Nature of Income |
|---|---|
| 58(1)(a)(i) | Personal expenses |
| 58(1)(a)(ii) | The tax on interest which is payable outside of India but has not been paid or deducted at source |
| 58(1)(a)(iii) | ‘Salaries’ payable outside India on which no tax is paid or deducted at source |
| 58(1A) | Wealth-tax |
| 58(2) | Expenditure of the nature specified in section 40A |
| 58(4) | Expenditure in connection with winnings from lotteries, crossword puzzles, races, games, gambling or betting |
Read more at: Income Tax: You can also take advantage of tax exemption on these five sources of income, know what are the ways
Important Qurery:
1.What are the five sources of income?
As per the income tax act 1961, one’s income is divided into 5 categories —
- Income from Salary
- Income from house property
- Income from business profit
- Income from investments/capital assets
- Income from other sources
2.How is income from other sources taxed in India?
According to the Income Tax Act 1961, Income from Other Sources is one of the five types of income subject to taxation. This category includes all incomes of earnings that are not otherwise classified under any other head of income.
The following three conditions must be satisfied according to Section 56 of the Income Tax Act for an income to qualify as income from other sources.
- Income is generated.
- Any other provision of the Income Tax Act does not exempt such income.
- Income from such sources cannot be claimed as salary, house property income, profits and gains from business or profession, or capital gains.
3.Under which tax laws do head pensions & family pensions fall?
Pension income is taxed under the head (tax law) Income from Salary, while family pension income is taxed under the head (tax law) Income from Other Sources.
4.Is a painting received as a gift taxable?
As per the Income Tax Act, painting is considered assets, and if the value of such a gift exceeds Rs.50,000, it will be taxable under the Income from Other Sources head.
5.Is there a tax on gifts received on the occasion of marriage?
Gifts (whether in cash or kind) received on the occasion of a wedding are not taxable.
6.How much tax do I have to pay if the value of the gift exceeds Rs.50,000?
If you have received this gift on another occasion (other than your wedding) and its value exceeds Rs.50,000. In that case, the entire amount would be taxed under the income from other sources.