Income from Other Sources: Meaning, Inclusions, Deductions

2025-06-25

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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.

Key Takeaways

Lottery, gambling, and race winnings are taxed at a flat rate without deductions.
Gifts from non-relatives above the limit are taxable.
Use the correct ITR form to avoid penalties or rejection of your tax return.
Reconcile ITR with Form 26AS & AIS to prevent mismatches and scrutiny.
Claim all eligible deductions under Sections 80C, 80D, and exemptions to reduce tax liability.

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 –

You have an income
Such income is not tax-exempt under any other Sections of the Income Tax Act 1961
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:

Dividends: Dividends are taxable under ‘income from other sources,’ based on the residential status of the source company that paid out the dividend.
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%.
Dividend from a Foreign Company: Dividends received from any foreign company are subject to taxation under ‘Income from Other Sources.’
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.’
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.
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

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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

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) Provison	Income from any activity of maintaining or owning race horses	All expenditures relating to such activity

Learn More - What is Section 80DDB?

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

Comparing Taxation of ‘Income from Other Sources’ Under Old vs. New Tax Regime.

For income from sources like interest, dividends, or lottery winnings, taxation rules can vary based on the chosen tax regime. The Old Tax Regime allows certain deductions and set-offs, while the New Tax Regime offers simplified rates but limits exemptions. Here’s a quick comparison:

Feature/Aspect	Old Tax Regime	New Tax Regime
Tax Rates	IOS taxed as per old slab rates; lottery winnings at 30% (+cess +surcharge)	IOS taxed as per the new slab; lottery winnings at 30% ( cess + surcharge)
Dedications (sec 57)	Allowed (e.g interest on loans for investment, collection charges	Mostly not allowed (no deduction for investment loan, interest, etc.)
Family Pension Deduction	Allowed: 1/3rd of the pension or ₹15000 (whichever is lower)	Allowed: 1/3rd of pension or ₹15000 ( whichever is lower)
Interest on compensation deduction	Allowed: 50% of interest received on compensation.	Not allowed- full interest amount taxable
Set off from the house property	Allowed: Up to ₹2 lakh loss can be set off against the IOS.	Not allowed - cannot adjust the house property losses against IOS or any other income.

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Common Mistakes to Avoid in ITR Filing

Some of the common mistakes to avoid while filing the ITR return are as follows:

Using the Wrong ITR Form

Choosing the correct Income Tax Return (ITR) form is crucial, as it depends on your income sources. Filing with the wrong form can render your return invalid, leading to unnecessary complications. Always verify the form before filing.

Not Reconciling with Form 26AS & AIS

Form 26AS and the Annual Information Statement (AIS) provide details of your Tax Deducted at Source (TDS) and major financial transactions. If your ITR doesn’t match these records, it may trigger tax scrutiny. Ensure all figures align to avoid unnecessary issues.

Overlooking Deductions & Exemptions

Many taxpayers miss out on valuable tax benefits by not claiming deductions under Section 80C, 80D, and exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA). Failing to claim these can lead to a higher tax liability. Review all eligible deductions before filing.

Errors in Personal & Bank Details

Providing incorrect details in name, PAN, or bank account information can cause refund failures or processing delays. Always double-check these details to ensure smooth processing of your tax return.

Not Disclosing Income from a Previous Job

If you switched jobs during the financial year, you must report income from all employers in your ITR. A mismatch between Form 16 and Form 26AS can result in tax notices. The new Form 16 format includes a section to disclose past employment income, ensuring accurate tax calculations. Always consolidate your income details before filing.

Conclusion

Mastering the taxation of Income from Other Sources empowers you to save more and stay compliant. Avoid common filing mistakes, claim rightful deductions, and choose the right tax regime for maximum benefits. A well-planned approach ensures a smooth tax filing experience and helps you make the most of your hard-earned money.

Glossary

Income from Other Sources (IOS): Earnings like interest, dividends, gifts, or lottery winnings, taxed per income tax rules.
Form 26AS: A tax statement showing TDS, advance tax, and high-value transactions for accurate ITR filing.
Annual Information Statement (AIS): A report of financial transactions submitted to the tax department for compliance.
Section 57 Deductions: Deductions on expenses incurred to earn IOS are restricted under the new tax regime.
Set-off of Losses: Adjusting losses from house property or other sources against taxable income to reduce taxes.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.