income tax on income from other sources
income tax on income from other sources

Income from Other Sources is one of the five heads of income. Any income that is not specifically taxable under any other head of income will be taxable under Income from other sources. E.g., Gifts, dividends, etc., are taxable under Income from other sources,

Incomes covered under Income from other sources

The following are some taxable income sources under the head ‘income from other sources-(IFOS)’.

  • Dividends from companies
  • Winnings from lotteries, crossword puzzles, races including horse races, card games, gambling, betting, or any other similar games
  • Income by way of interest received on compensation or on enhanced compensation
  • Gifts
  • Family pension
  • Different interest incomes (eg. interest income from post office savings account, bank savings account, bank fixed deposit, etc.).
  • Interest received from IT Dept. on refunds
  • Insurance commission
  • Income from letting out machinery, plant, or furniture
  • Income from royalty
  • Any sum received under a Keyman Insurance Policy including a bonus
  • Director’s commission for standing as guarantor to bankers
  • Remuneration received by Members of Parliament
  • Income from sub-letting of House Property by a tenant, etc
  • Agricultural income exceeding INR 5000

This is an inclusive list and not an exhaustive list.

In addition to the above, the following incomes are charged to tax under this head, if not taxed under the head “Profits and Gains of Business or Profession.”

Taxability of Income from Other Sources

The taxability of incomes falling under this head may differ as per their nature. Let’s have a look at the tax treatment on some of these incomes:

Gift Tax: Taxability on Gifts

Gifts can mainly be classified under the following categories:

Gifts will be taxable under the head income from other sources as per the slab rates.

However, below are the following exceptions:

  1. Gifts will be exempt if the aggregate value received during a financial year does not exceed INR 50,000.
  2. Any property received without consideration and the total fair market value of such properties received throughout the year does not exceed INR 50,000.
  3. Gifts received from relatives:
    • On the occasion of the marriage.
    • Under will/by way of inheritance.
    • In contemplation of the death of the payer.
    • From local authority.
    • A fund, foundation, university, other educational institution, hospital, or any trust or institution defined in Section 10(23C).
  4. The amount received from a charitable trust registered under Section 12AA.

Tax Treatment on Life Insurance Policy

Any amount received under a Life Insurance policy, including any bonus amount, is exempt from tax under section 10(10D) of the Income Tax Act. However, a few important points to be noted with regard to this exemption:

  • The exemption is available only in respect of the amount received from the Life Insurance policy.
  • The exemption is available only if the amount of premium paid on such policy for a particular financial year does not exceed 20% (10% in respect of policies taken on or after 1st April 2012) of the actual capital sum assured. Please note that any amount received on the death of the policyholder will continue to be exempt without any conditions.
  • While calculating the actual sum assured, any premium amount agreed to be returned or any of the benefits by way of bonus shall not be considered.

Let’s take an example to understand the same:

Pratik has taken a Life Insurance policy on 15th December 2014. The total sum assured is INR 50,00,000 and the annual premium is INR 82,000. The policy will mature in the year 2026 and the maturity amount will be INR 70,00,000.

  • Now in the event of Pratik’s death, the amount sum assured of INR 50,00,000 received by the nominee will be completely exempt.
  • In any other case, the amount received from the policy will be exempt if the annual premium of the financial year does not exceed 10% of the capital sum assured. Here the capital sum assured is INR 50,00,000, so 10% of 50,00,000 comes to INR 5,00,000. The annual premium paid by Pratik is only INR 82,000 so nothing will be taxable if money is received in an event other than death.

Tax on Dividend Income

Tax on Interest Income

The taxpayer is entitled to pay tax on FD interest income and recurring deposits. Furthermore, if the total interest income from such sources exceeds INR 10,000, then the banks will deduct the TDS @ 10%. (@ 20% if the PAN is not provided).

The taxpayer is entitled to pay tax on savings bank account interest and post office deposits. However, they are tax deductible u/s 80TTA/80TTB to a certain limit.

Tax on Commission Income

If the broker or any other insurance company has paid you any commission or brokerage, and it is not part of your business, this income can also be categorized as income from other sources. The income will be taxable at a slab rate which applies to individual assessee.

For example: Sanjay, being a salaried individual, has received brokerage income from Zerodha for referring friends. Since he doesn’t have a brokerage business, this income can be reported as income from other sources.

Exempt Income

Below interest income is completely exempt in the hands of taxpayers:

Can I claim any expenses from Incomes from Other Sources ?

Yes, As per Section 57 of the Income-tax Act, the following are some of the deductions available from income chargeable to tax under the head Income from Other Sources:

  • Any commission or remuneration paid for realizing dividend (taxable dividend) or interest on securities.
  • Any current repairs, insurance premiums, and depreciation in respect of plant, machinery, building, and furniture are deductible from the rent income earned by letting out of such plant, machinery, building, and furniture.
  • In the case of family pension, the deduction is allowed for the lower of INR 15,000 or 1/3rd of the such amount received like family pension.

Note: No personal expenditure shall be allowed to be deducted from income chargeable under the head ‘Income from Other Sources’.

As per the Finance Act 2020, A taxpayer can claim a deduction of interest expenses for earning a dividend income. Interest on money borrowed for investing in the shares can be claimed as a deduction subject to a maximum of 20% of dividends or income in respect of units of a mutual fund.

What tax deduction cannot be claimed under Income From Other Sources?

According to section 58 of the Income Tax Act, the following are deductions that can not be claimed during the computation of Income from Other Sources;