Income from Other Sources

Income from other source is a residuary head of income. Any item of income which does not fall under any other four specific heads of income is to be charged under this head.
According to sec 56(2) following incomes are chargeable under this head.

  • Dividend declared by a foreign company
  • Family pension
  • Winnings from lottery, crossword puzzles, horse race etc
  • Income from plant, machinery or furniture let out on hire where it is not the actual business of the assessee.
  • Interest from securities, bank deposits
  • Income from sub letting
  • Any other receipts which doesn’t fall under any other heads of income.
  • Income from agricultural land situated outside India
  • Examiner ship fees received by college teachers
  • Income from undisclosed source
  • Ground rent etc
  • Receipts without consideration in certain cases

Dividend
It means any amount paid by a company, out of divisible profits, whether taxable or not taxable, to its share holders in proportion to his share holding in the company. Dividend also includes deemed dividend. The following payments are deemed as dividend.
a)      any distribution entailing the release of company’s assets
b)     any distribution of debentures, debenture stock, deposit certificates
c)      distribution on liquidation of company
d)     distribution on reduction of capital
e)      any payment by way of loan or advance by a closely held company
Dividend distributed or paid by a domestic company after 31-3-2003 is not taxable in the hands of the shareholder under sec10 (34). On such dividend, the dividend declaring company has to pay tax. But deemed dividend under sec2 (22) is taxable in the hand of the share holders.
Winnings from lotteries, crossword puzzles, horse races etc
Winnings from games of any sort or from gambling or betting of any form are taxable. A flat rate of 30% tax plus surcharge and cess will be deducted at source from such winnings. No TDS will be collected if the winnings from lottery, crossword puzzles etc is upto Rs.5,000/- and Rs.2500/- in case of winnings from horse race. While computing the income of the assessee it is the gross winning (net winnings plus tax deducted at source) is to be included.
Gross amount = Net amount X 100
100-30
Interest on securities
Interest on securities is charged to tax under this head if the securities are held by the assesee as fixed assets. If the securities are held as stock in trade then the interest is taxable under the head profit and gains of business or profession . The gross interest (net interest plus tax deducted at source) is taxable. If net interest is given, it should be grossed up in the hands of recipient if tax is deducted at source by the payer.
Net interest X 100
100- rate of TDS

No

Particulars

TDS Rate

1

Interest on any security of central or state government

No TDS

2

Interest on debentures listed in a recognized stock exchange, statutory bodies and local authority

10%

3

Any other interest on security[unlisted]

20%

4

Winnings from lottery, crossword puzzles, card games, horse race etc

30%

For the purpose of income tax purpose, the securities can be classified into
1. Government securities:
         1. Tax-free securities
i.      Interest fully exempted
ii.      Not included in the total income
i.      Issued by central govt. or state govt.
ii.      Non TDS
iii.      Taxable securities
iv.      Interest received should not be grossed up
i.      Local authority, statutory corporation and company issues in the from of debentures and bond
ii.      Tax is paid by the issuer
iii.      Since tax is paid by the issuer it is termed as tax-free securities
iv.      Interest should be grossed up
i.      Taxable securities
ii.      TDS is collected
iii.      Interest should be grossed up if net amount is given
        2.Less- tax securities
2. Commercial securities

  1. Tax-free securities
  2. Less tax commercial securities

Bond washing transaction [Sec 94] means selling securities to a friend or relative who does not have any taxable income before the payment of interest and purchasing the securities back after the payment of tax. To prevent the tax evasion through bond washing transaction, the interest received by the transferee will be deemed as the income of the transferor and accordingly, it will be included in the total income of the transferor and not the transferee.

Receipts without consideration [sec 56(2) (v)]

                Any sum of money exceeding Rs.50,000/- received by an individual or HUF without any consideration is taxable if it is received on or after 1st April,2006. However exemption is granted in respect of any sum of money received

  1. from any relative or
  2. on the occasion of the marriage of the individual or
  3. under a will or by way of inheritance or
  4. in contemplation of death of the payer or
  5. from a local authority
  6. from a charitable institution registered under Sec12AA

In respect of above gift there is no ceiling limit and therefore , entire amount is exempt from chargeability. For the purpose of this provision relative includes

a)      spouse of the individual

b)     brother or sister of the individual

c)      brother or sister of the spouse of the individual

d)     brother or sister of either parents of  the individual

e)      brother of father of the individual

f)       brother of mother of the individual

g)      sister of father of the individual

h)     sister of mother of the individual

i)       any lineal ascendant or descendant of the individual

j)       any lineal ascendant or descendant of the spouse of the individual

k)     spouse of the persons referred to in (b) to (j)

  1. Family pension

In case of family pension received by legal heirs , a standard deduction of 1/3rd of such actual amount received as family pension or Rs.15000/- whichever is less is allowed as deduction

Permissible Deductions from Income from other sources [Sec 57]

  1. In respect of any sum collected from employees towards the welfare fund contribution, deduction shall be allowed to the extent the amount is remitted within the relevant due date under respective Acts
  2. In respect of family pension a sum equal to 33.33% of the pension or Rs.15,000 whichever is less shall be allowed as deduction.
  3. In respect of income earned by way of lease rental   on letting machinery, the repairs , insurance and depreciation shall be deductible.
  4. Any other expenditure incurred wholly and exclusively for the purpose of earning such income, subject to the following conditions
    1. Expenditure in incurred wholly and exclusively for the purpose of making or earning the income
    2. It is not a capital expenditure
    3. It is not a personal expenses
    4. It is incurred in the accounting year

Amount not deductible from Income from other sources [Sec 58]

The following expenses are not deductible from income from other sources;

  1. Personal expenses of the assessee
  2. Any amount paid as wealth tax
  3. Any amount which is considered as unreasonable
  4. Any expenditure in connection with winnings from lotteries, crossword puzzle etc
  5. Interest payable outside India for which Tax has not been paid or deducted at source

Interest fully exempted from the heal income from other sources

Interest received by an assessee from following investments exempted from other source income

  1. 12 year national savings annuity certificate
  2. National Defence gold bond
  3. Post office cash certificate
  4. National plan certificate
  5. National plan savings certificate
  6. Post office national savings certificate
  7. Post office savings bank account.

SCHEME OF TAXATION [INCOME FROM OTHER SOURCES]

Particulars Amount Amount
Dividend from foreign company

Less: collection charges

Interest on securities

Less: reasonable expenses in connection with the securities

Casual income[ winnings from lottery, crow puzzles etc]

Income from letting P&M, Building etc

Less: depreciation and other expenses related with it

Family pension

Less: 1/3rd or 15000 whichever is less

Any other income

Less: expenses related with the income

SCHEME OF TAXATION [INCOME FROM OTHER SOURCES]

Particulars Amount Amount
Dividend from foreign company

Less: collection charges

Interest on securities

Less: reasonable expenses in connection with the securities

Casual income[ winnings from lottery, crow puzzles etc]

Income from letting P&M, Building etc

Less: depreciation and other expenses related with it

Family pension

Less: 1/3rd or 15000 whichever is less

Any other income

Less: expenses related with the income

Income from other sources

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 Source: Scribd.com

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