Income from other sources - rates, exemption, calculation

In this post, we will take a look at income from other sources under Income Tax.

We will cover the following topics:

What is Income from other sources?

The Income Tax Department has put forward 5 heads of income for easy taxation reporting, and they are income from:

  1. Salary
  2. House Property
  3. Capital Gains/Loss
  4. Business and Profession
  5. Other Sources

There are 2 main categories under Income from other sources, and they are:

  • Recurring income
  • Non-recurring income

Recurring income: Any income received regularly at equal intervals is recurring income. This includes interest income from the savings bank, post office savings, fixed deposits, recurring deposits, etc.

Non-recurring income: Any income received only once is known as non-recurring income. This includes Income from the lottery, gambling, horse racing, etc.

As per Section 56 under IT Act, the following conditions must be fulfilled to be recognized under income from other sources.

  1. There is an income.
  2. It is not exempted under any other provisions under the IT Act.
  3. It cannot come under other heads like- salary, income from house property, profits and gains from business or profession, or capital gains.

Next, let us see the items which come under this type of income.

List of items under Income From Other Sources

Now let see them in detail:

  1. As per section 56(2)(i), dividends are taxed. As per Section 115BBDA, all the dividends received from Domestic Companies upto Rs.10,00,000  are tax exempted. If it’s above Rs. 10,00,000 then taxed at 10%.
    • If you receive a dividend from a domestic company, and it is chargeable under dividend distribution tax, then you will get an exemption.
  2. Income from winnings from lotteries, crossword puzzles, races including horse races, card games, or any other game, gambling, or betting is taxed.
  3. The tax is applicable for the income from the interest you received on compensation /on enhanced compensation. However, there is a deduction of 50% of such income, but no other deduction is allowed from such an income.
  4. Any money received in advance /in course of negotiations to transfer a capital asset is taxed, if:
    • The sum is forfeited; and
    • The negotiations do not result in the transfer of capital assets.
  5. The gift individual/HUF receives as the sum of money /property from any person is taxed. However, if you receive the amount/property from your relatives* then there is no tax. (List of relatives as defined by ITD – Relative list) If the amount is above Rs. 50,000 in the previous year without consideration, it is taxable.

Immovable property

  1. If you receive an immovable property with a stamp duty value over Rs. 50,000 without consideration, then the stamp duty value is taxable.
  2. If you receive an immovable property for a consideration less than the stamp duty value of the property by the higher of the following amount, the difference is taxable:
    • Amount of Rs. 50,000
    • the amount equal to 5% of the consideration

Movable property

  1. If it is received without consideration and the aggregate value exceeds Rs. 50,000, then the whole market value is taxable.
  2. If it is received with consideration and is less than the aggregate market value. The difference between them is over Rs. 50,000 then this difference is taxable.

The following incomes are taxed if they are not taxed under “Profits and gains of business or profession”.

  • Any contribution to a fund for the welfare of employees as per [Section 56(2)(ic)].
  • Income by interest on securities. [Section 56(2)(id)].
  • Income from renting / hiring of plant, machinery, or furniture. [Section 56(2)(ii)].
  • Income from renting out of the plant, machinery/furniture with building [Section 56(2)(iii)].
  • Any sum received under a Keyman Insurance Policy (insurance policy where the employer is both the proposer and premium payer), including a bonus. [Section 56(2) (iv)].

Incomes under Income from Other Sources

Here are some examples:

  1. Income from renting house property by a tenant
  2. Casual income
  3. Insurance commissions received by the assessee
  4. Family pension payments received by the legal heirs of dead employees
  5. Interest on bank deposits and deposits with companies
  6. Interest on loans given
  7. Remuneration of Parliament Members
  8. Rent earned from a vacant plot of land
  9. Agricultural income from agricultural land situated outside India
  10. Interest paid by the Government on excess advance tax payment

Exemptions for different sources of income

Nature of Income Deductions allowed
Dividend or Interest on securities Any reasonable amount paid as commission or remuneration to the banker or any other person for the purpose of realizing dividend or interest on securities
Employee’s contribution towards EPF, Superannuation Fund, ESI Fund, or any other fund setup for the welfare of such employees If employees’ contribution is credited to their account in the relevant fund on or before the due date, then the complete amount is exempted
Rental income letting of plant, machinery, furniture, or building Rent, rates, taxes, repairs, insurance, and depreciation, etc.
Family Pension 33.33% of family pension, subject to a maximum of Rs. 15,000.
Any other income Any other expenditure (not being capital expenditure) expended wholly and exclusively for earning such income.

Income from other sources

Instances where a tax deduction is not allowed

The following deductions cannot be claimed when you are calculating income from other sources:

  1. Personal expenses
  2. Interest payable outside India when tax is not paid or deducted at the source.
  3. Amount paid which is taxable under“Salaries” and payable outside India, on which tax is not paid or deducted at source.
  4. Any amount paid on wealth tax.
  5. Deductions for transactions made at other than arm’s length price under Section 40A

How to calculate tax on income from other sources?

You can calculate the tax on income from other sources in 2 different ways.

  1. If the income is from a non-recurring source (or causal income) then a tax of 30% is directly applicable to the total amount.
    • For instance, If your casual income is Rs.1 lakh, then the tax of Rs. 30,000 is applicable.
  2. The total taxable amount is added to your other taxable income. Thus, you can pay it as per the existing income tax slab.

Example: If you are getting any family pension of Rs. 50,000, then you will get an exemption of 33.33% or 15000, whichever is the least.

33.33% of 50000 =  16665 or 15000. Since 15,000 is the lesser amount, that will be the exemption amount.

So taxable income will be 50000 – 15000 = 35,000.

35,000 will be then added to other income and an income tax slab will be applied on total taxable income.

With that, we have come to the end of our blog on income from other sources. We hope you found this helpful.

If you have any questions, please drop them in the comment section below.

Reference:

You can also see how it works in Saral TaxOffice: