Income from other sources: Definition, types and applicable tax rates

Income details are classified under five heads mentioned under the Income Tax Act. One of these includes the ‘income from other sources’. The other four heads are ‘income from salaries’, ‘income from house property’, ‘income from business, or profession’ and ‘income from capital gains’. Any income that is not taxable under any other head of income and cannot be excluded from one’s total income is assessed under the ‘income from other sources’ as residual income.

In this article, we will explain the inclusions and exemptions under income from other sources, and other aspects.

See also: Income Tax Act in India: Bare facts

 

Income from other sources: Definition

As per Section 56 of the Income Tax Act 1961, income from other sources refers to income that cannot be taxable under any other heads of income and is not to be excluded from the assessee’s total income. This income will be included as residuary income and taxed under ‘income from other sources’. Further, Section 57 of the Income Tax Act and its various subsections specify expenses qualifying for deductions for incomes gained as ‘income from other sources’.

 

Income from other sources: Examples

There are various incomes that can be included under this head when calculating one’s tax dues. The complete list of different incomes included as ‘income from other sources’ is mentioned under Section 56 of the Income Tax Act 1961. Some of the main incomes that come in this category are explained below:

• Dividends from investments in shares, mutual funds, etc. Based on the company’s residential status, dividends are subject to taxation as income from other sources. This covers the following:
  • Dividend from an Indian company. It is not taxable if the company has paid Dividend Distribution Tax. However, as per section 115BBDA of the Income Tax Act, if an individual, HUF, or a firm receives dividends from Indian companies that exceed Rs 10 Lakh, the excess is taxable at 10%.
  • Dividend from a foreign company
• One-time income received by winning lotteries, crosswords, horse races and other forms of gambling and betting.
• Gifts of value exceeding Rs 50,000 except for gift received on marriage. Gifts may include money and any movable or immovable property.
• Income gained by an employer from the employee as a contribution towards provident fund (PF), ESI, superannuation fund, etc., if it is not deposited into the applicable fund within the due date.
• Any interest received from bank term deposits, company deposits, etc.
• Advanced payments or capital received during negotiation or transfer of any capital asset.
• Payments received by renting out machinery, plant, etc., in case such incomes are not considered under ‘Income from business or profession’.
• Income gained through the sale of a property.
• Amount obtained under Keyman Insurance Policy, including bonus, if not taxable under ‘Profits and Gains of Business or Profession’ or ‘Salaries’.

 

Income from other sources: Applicable tax rates

The applicable tax on income from other sources differs, given the type of income.

Tax on income from dividend

Dividends from investments in shares, mutual funds, etc., will be taxable as per the applicable tax slab for the individual in the relevant financial year.

Taxation of one-time income

Income obtained by winning a lottery, horse races and other forms of betting will be taxed at 30%, in addition to the applicable cess. This tax rate is applicable, irrespective of the Income Tax slab of the taxpayer.

Taxation of gifts

As per the Income Tax Act, gifts refer to money, any movable or immovable property like land or other types of assets obtained without consideration, that is, without any exchange of money or for inadequate consideration, that is, by paying any sum lower than the fair market price.

The gifts are exempted from tax in some cases. These include money or assets obtained as inheritance through a will, gifts received on the occasion of one’s marriage, money or gifts received from relatives, etc. As per the current taxation laws, gifts having a fair market price lower than Rs 50,000 are exempted from tax.

Taxation on income from sale of property

Tax on property transactions pertaining to any moveable, or immoveable property, including land, will be levied along with stamp duty charges. The full stamp duty charges will be taxable if it is an immovable property gifted without consideration. If the property is received after consideration, and the stamp duty is above Rs 50,000 or 10%, the stamp duty becomes taxable as per the income for the buyer. TDS on property will also be applicable to such transactions.

 

Income from other sources: Tax exemptions

Different income sources qualify for deductions when filing Income Tax Returns. Deductions are allowed on various expenses in case of income from other sources, as mentioned below:

• Commission or remuneration for realising interest on securities or dividends.
• Any expenses related to repair, depreciation on plant, fixtures, machines, and insurance premium qualify for deduction from income.
• Standard deduction is applicable for income from family pension, 1/3^rd of such income or Rs 15,000 whichever is less.
• Interest on additional compensation or compensation, deduction of up to 50% interest in such cases is allowed as per the existing rules.

 

Income from other sources: How is net income calculated?

Net income under income from other sources is calculated based on the formula mentioned below:

Net income from other sources = gross income under Section 56 income sources – deductions applicable in Section 57

There may be different tax rates applicable for different types of income under this head, based on the applicable sections and subsections of the Income Tax Act.

 

FAQs

How to declare income from other sources?

If you are filing Income Tax Returns (ITRs), make sure you choose the relevant ITR form. While filing ITR 1 or Sahaj form online, taxpayers must disclose the income received from other sources as a total amount.

If a person wins Rs 3 Lakh in a lottery, will it be taxable?

Money obtained by winning a lottery or any monetary profit will be considered under ‘income from other sources’ and will be taxable as per Section 56 (2).

If someone wants to gift a land to spouse, does it fall under income from other sources?

If you gifted a plot of land to your spouse, you would be required to pay stamp duty and registration charges, depending on the state where the property is located. However, the person receiving the gift will not have to pay tax on receipt of the property as a gift.

How to calculate taxes on income from other sources?

The calculation of taxes under ‘income from other sources’ will depend on the type of income. Income received as dividends and interest will be added to the net taxable income for the relevant financial year and taxed as per the applicable tax slab. Income received by winning a lottery will be taxed at 30%.

Do I have to pay tax on a car gift?

Any gift in the form of movable property such as jewellery, archaeological collections, drawings, paintings, sculptures, etc., will be subject to tax under the income from other sources if its fair market value exceeds Rs 50,000. However, a car is not covered within the scope of property. Hence, car gifts may not be subject to tax in the hands of the recipient.

Is the interest one receives from a bank fixed deposit, a recurring deposit and a savings account taxable?

The interest income received from such sources is taxable under the head ‘income from other sources’. One is required to pay tax based on the applicable tax slab. Moreover, there is a deduction of up to Rs 10,000 on interest received from savings accounts and recurring deposits. Senior citizens can avail of deductions up to Rs 50,000 on their interest income from fixed deposits.

 

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com