1. Introduction, Meaning and Concept of Income from Other Sources.
1. Income chargeable : Section 56
2. Deductions from income from other source : Section 57
3. Deductions not allowable : Section 58
4. Profit chargeable to tax : Section 59
5. Example Problems
Q. Enumerate at least five items of income which can be included under the head "income from other sources".
Q: Which deductions are allowed in computing taxable income under the head "Income from other sources"? Explain.
Q: Discuss the scope of the "Income from other sources". State the deductions allowable.
Q: What do you understand by "Income from other sources"? State the main incomes which are included under this head.
Introduction :
When the income is not chargeable under any other head of income is chargeable under this head i.e. "income from other sources".
Income chargeable under this head is computed with the regular method of accounting adopted by the assessee.
In other words, it can be said that this is a residual head of charge of income.
Under the following conditions, the income will be charged under this head.
i) There is an Income
ii) Such income is not exempt from tax u/s 10 to 13A.
iii) Such income does not included under other 4 heads of income as Discussed earlier.
Meaning and Concept of Income from Other Sources :
Income from other sources is the fifth and last head of income under which the total is computed and assessed. As the name suggests, "Income from Other Sources" is
a residuary head of income. Any item of income chargeable to tax but does not fall within the ambit of the other four specific heads of income shall be included under this head of income.
Section 56 lays down what incomes are taxable under this head. Section 57 and 58 lays down the deductions which are allowable and not allowable respectively, while computing income under this head.
The Following Income of Assessee are Chargeable under this Head : Section 56 :
- Dividend.
- Any winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
- Any sum received by the assessee from his fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, or any other fund for the welfare of such employees, if such income is not chargeable to income tax under the head "profit and gains of business or profession".
- Income by way of interest on securities, if the income is not chargeable to income tax under the head "Profit and gains of business or profession".
- Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to Income Tax under the head "Profit and gains of business or profession".
- Any annuity due or commuted value of any annuity paid under section 280-D.
- Income from letting of machinery, plant or furniture belonging to the assessee and also building and the letting of the building is in separable from the letting for machinery, plant or furniture, if such income is not chargeable under the head "Profit and gains from Business or profession".
- Income by way of any sum received under Keyman Insurance policy including the sum by way of bonus on such policy if such income is not chargeable to income tax under the head "Profit and gains from Business or profession" or under the head "Salaries".
- In some cases, gift is taxable under this head.
- Income from sub letting.
- Director's fees.
- Interest on Bank deposits and loans.
- Ground rent.
- Agricultural income from a place outside India.
- Director's commission for underwriting shares of new company.
- Examination fees received by Teacher or by Professor from the Educational Institute other than His Employer.
- Rent of plot of land.
- Salaries payable to a member of Parliament or of State Assembly.
- Interest on securities issued by a foreign Government.
- Family pension received by family members of a deceased employee.
- Interest on employee's unrecognized provident fund, in the case of retirement.
- Income from undisclosed sources.
- Gratuity paid to a Director who is not employee of the company.
It is important to note that Dividend is taxable under the head "Income from other sources irrespective of the nature of holding i.e. whether the shares on which dividend is received is held by assessee as an investment or as stock-in-trade.
Income by way of interest on securities is taxable after making permissible deductions under the head "Income from other sources", if the securities are held as investments.
These Income of Assessee are Chargeable under this Head : Section 56. These are explain in details by following points :
Chargeability [Section 56(1)] :
As per Section 56(1), income of every kind, which is not to be excluded from the total income under this Act, shall be chargeable to income tax under the head "Income from other sources" if it is not chargeable to income tax under any of the first four heads specified in Section 14.
In other words, the following conditions must be satisfied before an income can be taxed under the head "Income from other Sources":
1) There must be an income;
2) Such income is not exempt under the provisions of this Act;
3) Such income is not chargeable to tax under any first four head, viz. "Income from salary", "Income from house property", "Profits and gains of business or profession" and "Income from capital gain".
Income from other sources is, therefore, a residuary head of income.
Inclusion [Section 56(2)] :
There are many incomes which are taxable under head 'Income from Other Sources' However, Section 56(2) enlists certain specific incomes which shall be chargeable to Income-tax under the head Income from other sources without prejudice to the generality of the provisions of sub-section (1) of Section 56. These are as follows :
1) Dividends, other than the dividends referred to in Section 115-0.
2) Winnings from lotteries, crossword puzzles races including horse races, card games and other games of any sort, or from gambling or betting of any form or nature whatsoever.
3) Any sum received by the assessee from his employees as contribution to any provident fund, or any other welfare fund for the employees provided it is not taxable under the head "Profit and Gains of Business or Profession'.
4) Income by way of interest on securities provided the income is not chargeable to income tax under the head profits and gains of business or profession.
5) Income from machinery, plant or furniture belonging to the assessee and let on hire, provided the income is not chargeable to income tax under the head profits and gains of business or profession.
6) Where the assessee lets on hire, the machinery, plant or furniture belonging to him and also buildings, and letting of-buildings, is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income tax under the head profits and gains of business or profession.
7) Any sum received under a Keyman Insurance Policy, including the sum allocated by way of bonus on such policy, if such income is not taxable under the head "Salaries" or "Profits and gains of
business or profession".
8) Any sum of money (gift) aggregate value of which exceeds Rs. 50,000 received without consideration by an individual or a Hindu Undivided Family from any person or persons, subject to certain exceptions [Section 56(2)](vi)].
9) Income by way of interest received on compensation or on enhanced compensation to be taxed in the year in which such interest is received.
10) Amount received as advance in case of a capital asset and when Such sum is forfeited or negotiations do not result in transfer shall be taxable under Section 56(2)(ix).
11) Other Incomes which are Normally Included under the Head Income from Other Sources :
Following are some of the incomes which are normally chargeable to tax under this head because these are not covered under any of the specified heads:
i) Income form sub-letting of a house property by a tenant,
ii) Casual income,
iii) Insurance commission,
iv) Family pension (payment received by the legal heirs of a deceased employees),
v) Director's sitting fee for attending board meetings,
vi) Interest on bank deposits/deposits with companies,
vii) Interest on loans,
viii) Income form undisclosed sources,
ix) Remuneration received by Members of Parliament,
x) Interest on securities of foreign government,
xi) Examinership fees received by a teacher from an institution other than his employer,
xii) Total interest till date on employee's contribution to an unrecognized provident fund at the time when the payment of lump sum amount form the unrecognized provident fund is due,
xiii) Rent from a vacant piece of plot of land,
xiv) Agriculture income from agricultural land situated outside India,
xv) Interest received on delayed refund,
xvi) income form royalty, if it is not an income from business or profession,
xvii) Director's commission for standing as a guarantor to bankers,
xviii) Directors commission for underwriting shares of a new company,
xix) Gratuity received by a director who, under the relevant contract, is not an employee or servant of the company, is assessable as income from other sources,
xx) Income from racing establishment,
xxi) Income from granting of mining rights,
xxii) Income from markets, fisheries, rights of ferry or moorings,
xxiii)Income from grant of grazing rights,
xxiv) Interest paid by the government on excess payment of advance tax, etc.
xxv) Income received after discontinuance of business.
When the Securities held as stock in trade, interest income is taxable as business income. (Refer section 28).
Interest on :
National Savings Certificates (VIII issue), National Savings Scheme Account,
Kissan Vikas Patras, is taxable on accrual basis as per the amount prescribed by the Department of Economic Affairs.
We have seen the different types of the income taxable under the Head "Income from other sources".
Deductions from Income from Other Source : Section 57 :
According to Section 57, the income chargeable under the head 'Income from other sources' is computed after making the following deductions:
1) In the Case of Dividends or Interest on Securities (Section 57(i)) :
Dividends, other than dividends declared distributed or paid after March 31, 2003 by a domestic company, and interest on securities are chargeable to income tax under this head. Gross dividends and gross interest on securities first included in assessee's total income and then, the following deductions are allowed therefrom:
i) Collection or Realization Charges :
Any reasonable sum paid by way of commission, remuneration or any other expenditure paid to a banker or any other person for the purpose of realizing such dividend or internet on behalf of the assessee shall be allowed as deduction.
ii) Interest on Loan :
Where the assessee has taken loan specifically to purchase shares or securities, purchased out if this yield any income by way of this interest dividend.
iii) Any other expenditure, not in the nature, specifically incurred to such interest or dividend.
iv) There are certain assesses who are exempted respect of the taxability of dividend income and therefore, dividend income in the hands of these particular assessee, to the extent as specified in the section, is not taxable even though the some falls under the head 'Income from other sources'. The dividend income
earned by the following entities is exempted from tax, namely :
a) Local Authorities,b) An approved scientific research association,c) A venture capital fund,d) Notified news agency,e) Pension fund set up by LIC or any otherinsurer approved by IRDA.f) Fund established for the welfare of employees,g) Trust or societies approved by Khadi and Village Industries Commission,h) SAARC Fund for regional projects,i) Investor Protection Fund, andj) Infrastructure Capital Fund.
2) In Case of Contribution towards Staff Welfare Schemes Received from Employees [Section 57(a)] :
Where any sum, received by the assessee from his employees as contributions to any provident fund or superannuation fund or any other fund set up for the welfare of employees, is first included in his total income under this head, and thereafter a deduction equal to the sum credited by the assessee to the employee's relevant fund account on or before due date, shall be allowed as deduction. Thus,
Income = Contribution received from his employees towards these funds.
Deduction = Amount deposited by the assessee to the employee's relevant funds on or before due date.
Due date means the date by which the assessee is required to credit employee's contribution in the fund, as per the Act by which the fund is governed.
3) In Case of Income Derived from Letting [Sec.57(ii)] :
When the assessee is in receipt of income from letting on hire of any machinery, plant or furniture along with the buildings where the letting of the buildings, cannot be separated from the letting of the said machinery, plant or furniture, the following deductions shall be allowed in respect of such income :
i) Current repairs to the plant, machinery, furniture of building.ii) Insurance premium paid to get these insured against risk of damage or destruction;iii) Repairs and insurance of machinery, plant or furniture;iv) Depreciation and unabsorbed depreciations per Income Tax Act.
4) Deduction in the Case of Family Pension [Section 57(iia)] :
If the assessee is in receipt of an income in the nature of family pension, he/she shall be entitled to a deduction of a sum equal to 1/3 of such income or Rs. 15,000 whichever is less.
'Family pension' means a regular monthly amount payable by the employer to a family person of an employee in the event of his death.
5) In the Case of Interest on Compensation or Enhanced Compensation (Section 57) :
In the case compensation enhanced compensation which is taxable under other sources, a deduction of a sum equal to 50% of such income shall be allowed to the assessec and no deduction shall be allowed under any other clause of Section 57.
6) In the Case of other Incomes (Section 57(iii)] :
Any other expenditure, not being in the nature of capital expenditure, incurred wholly and exclusively for the purpose of making or earning such income shall be allowed as deduction. Thus, the following conditions should be fulfilled in order to allow an expenditure as deduction under this head:
i) Expenditure is incurred wholly and exclusively for the purpose of earning income or making profit.ii) It is not of a capital nature,iii) It is not a personal expenditure,iv) It must be paid out or expended in the relevant previous year and not in any prior. or subsequent year,v) There must be a clear nexus between the expenditure incurred and the income sought to be earned.
Now the following chart explains the deductions available while computing "Income from other sources".
|
Particulars |
Deductions |
|
Family pension |
Lower of - 1/3rd of such income Rs.
15,000/- |
|
Dividends |
Bank Commission |
|
Gifts in any year exceeding Rs.50,000/- |
- |
|
Income from letting of : Furniture Machinery Plant Building which is not separable from
Composite letting with machineries etc. |
Current repairs, not borne by tenant Insurance Premium Depreciation |
|
Interest on securities |
Bank commission, remuneration paid |
|
Any sum received under Key man insurance Policy (Including bonus) |
- |
|
Receipt from employees being contribution to
Provident Fund, Superannuation Fund etc. |
Sum credited to the employee's account
of the relevant fund on or before due date. |
Amounts Not Deductible : Section 58 :
Amounts not deductible in computing the income under the head 'Income from Other Sources' (Section 58).
The following payments shall not be deductible in computing the income chargeable under the head 'Income from Other Sources':
1) Personal expenses of the assessee.
2) Interest paid outside India on which tax has not been deducted at source.
3) Salaries paid outside India on which tax is not deducted at source.
4) Any expenditure referred to in section 40A like excessive payments to relatives [Section 40A(2)] and cash payments exceeding Rs.20,000 / Rs.35,000 made in a mode other than account payee cheque / draft [Section 40A(3)].
5) Income tax/wealth tax paid.
6) Any expenditure or allowance in connection with winning of lottery, crossword puzzles, etc. However, expenditure incurred by the assessee for the activity of owning and maintaining race horses shall be allowed as a deduction while computing the income from this activity.
7) Wealth Tax
Profits Chargeable to Tax : Section 59 :
(1) The provisions of sub-section (1) of section 41 shall apply, so far as may be, in computing the income of an assessee under section 56, as they apply in computing the income of an assessee under the head "Profits and gains of business or profession".
FOR DETAILS REFER LINK :
- Problems :
Problem : 1
Mr. Shah furnishes the information of his income for previous year 2019-20.
Compute the income under the head "income from other sources".
|
1. Dividend income from
equity shares |
RS.600/- |
|
2. Dividend on Preference
Shares |
RS.3200/- |
|
3. Income from letting building
and machinery |
Rs.17,000/- |
|
4. Interest on Bank
Deposits |
RS.2500/- |
|
5. Directors sitting fee |
RS.1200/- |
|
6. Ground rent received |
Rs.600/- |
|
7. Income iron undisclosed
sources |
Rs.10,000/- |
|
8. Winning from deductions
are claimed by him |
Rs.10,000/- |
|
9. Following deductions
are claimed by him, i) Collection charges of
preference share ii) Allowable depreciation
on building & M/C iii) Fire Insurance on
Building & M/C |
Rs.200/ Rs.4,000/ Rs.100/-
|
Solution :
|
1. Dividend income from
equity shares |
Exempt |
|
2. Dividend on Preference
Shares |
Exempt |
|
3. Income from letting building and machinery (Rs.17,000/- Rs.4000/- RS.100/-) Rs.4000/ Depreciation Rs. 100/- Fire Insurance |
Rs.12,900/- |
|
4. Interest on Bank
Deposits |
RS.2500/- |
|
5. Directors sitting fee |
RS.1200/- |
|
6. Ground rent received |
Rs.600/- |
|
7. Income from undisclosed
sources |
Rs.10,000/- |
|
8. Winning from deductions
are claimed by him |
Rs.10,000/- |
|
Total Taxable Income |
Rs.37,200/- |
Problem : 2
Mr. Ahuja furnishes the following information of his income for the year ending 31 March, 2020
|
1.Dividend in September 2014 from UTI |
Rs.2000/- |
|
2. Dividend recd in July from XYZ Co Ltd (60% of income of the Company is
agri. income) |
Rs.3580/- |
|
3. Directors fee recd |
Rs.20000/- |
|
4. House rent received ( Rs. 250/- p.m.) Half portion of this house was sub let on monthly rent of Rs.250/- |
Rs.3000/- |
|
5. Winning from horse race on 1.12.2024 |
Rs.5528/- |
|
6. Winning from lottery (cost of tickets Rs.2000/-) |
Rs.27640/- |
Solution :
|
1.Dividend in September 2014 from UTI |
Exempt |
|
2. Dividend recd in July from XYZ Co. Ltd. (60% of income of the Exempt Company is agri. income) |
Exempt |
|
3. Directors fee recd |
Rs.20000/- |
|
4. House rent received ( Rs.250/p.m.) monthly rent of Half portion Rs.125/- X 12) = Rs.1500/- Rs.3000/-less 1500/- = Rs. 1500/- |
Rs.1500/- |
|
5. Winning from horse race (5528 X
100/69.10) |
Rs.8000/- |
|
6. Winning from lottery (Rs. 27,640/- X 100/69.10) |
Rs.40000/- |
|
Total Taxable Income |
Rs.69500/-
|