The Income Tax Act 1961 lists ‘Income from Other Sources’ as one of the five heads of incomes, subject to taxation. Income From Other Sources essentially includes all receipts of earnings that otherwise cannot be classified under any remaining heads of income.
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
What does ‘Income from Other Sources’ include?
The following types of receipts of income fall under the Income from Other Sources’ category –
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.
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’ –
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 –
Deductions under Section 57
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|
Expenses not deductible under Section 58
|Section||Nature of Income|
|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(2)||Expenditures specified in section 40A|
|58(4)||Expenditure associated with winnings from lotteries, races, crossword puzzles, games, gambling, or betting|