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Frequently Asked Questions

How is Income from Other Sources Taxed in India?

Income from Other Sources is one of the five heads of income subject to taxation under the Income Tax Act, 1961. Any income that is not covered in the other remaining four heads of income is taxed under income from other sources. It is referred to as residuary head of income. Incomes excluded from salary, house property, business & profession (PGBP) or capital gains are covered in Income from Other Sources, barring incomes that are exempt under the Income Tax Act.

Section 56: Incomes Taxable Only in Income from Other Sources – Criteria

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

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What does ‘Income from Other Sources’ Include?

The following types of receipts of income fall under the Income from Other Sources’ category –

1. Dividends

Dividends are taxable under ‘income from other sources,’ based on the residential status of the source company that paid out the dividend.

2. 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%.

3. Dividend from a Foreign Company

Dividends received from any foreign company are subject to taxation under ‘Income from Other Sources.’

4. 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.’

5. 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.

6. 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’ –

a) Employees’ contribution to any welfare scheme
b) Interest on securities such as debentures or government bonds
c) Rental income received from letting out the plant, furniture, or machinery owned by the assessee
d) Rental income received from letting out the plant, furniture, or machinery along with a building (here, these two cases of letting out are inseparable)
e) Receipts of income under a Keyman Insurance Policy

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 –

a) Income received from subletting a house property by a tenant
b) Insurance commissions received by you (i.e., assesse)
c) Casual income
d) Family pension payments received by the lawful heirs of dead employees
e) Interest earned on deposits with companies and bank deposits
f) Interest on loans
g) Remuneration received by the Members of Parliament (MP)
h) Rental income earned from a vacant plot of land
i) Agricultural income received from an agricultural land situated outside of India
j) Interest paid out by the Government on excess payment of advance tax

Section 57- Expenditures Allowed as Deductions

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 (PF), Superannuation Fund (SF), or ESI Fund setup for employees’ welfare In case the employees’ contribution is credited to their respective accounts in relevant fund before or on the due date
57(ii) Rental income received from letting of plant, furniture, machinery or building Rent, taxes, rates, repairs, depreciation and 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 compensation 50% of such interest received (subject to specific conditions)
58(4) Proviso Income from any activity of maintaining or owning race horses All expenditures relating to such activity

Section 58- Expenses not Deductible while Calculating Income Tax

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) ‘Salary’ payable outside India on which no tax is deducted at source or paid
58(1A) Wealth-tax
58(2) Expenditures specified in section 40A
58(4) Expenditure associated with winnings from lotteries, races, crossword puzzles, games, gambling, or betting