Guide: Income from Other sources and Taxes
What is Income from Other Sources?
Income from Other Sources is the residual head of income. Hence, any income which is not specifically taxed under any other head of income will be taxed under this head. Further, there are certain incomes which are always taxed under this head.
These incomes are as follows:
- Dividends from companies.
- Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, gambling or betting of any form whatsoever.
- Income by way of interest received on compensation or on enhanced compensation shall be chargeable for tax under the head “Income from Other Sources”.
- Gifts are also taxed under this head.
- Family pension.
- Different interest incomes (eg. interest income from post office savings account, bank savings account, bank fixed deposit etc.).
- Interest received from IT Dept. on delayed refunds.
- Insurance commission.
- Income from letting out of machinery, plant or furniture.
- Income from royalty.
- Any sum received under a Keyman Insurance Policy including bonus.
- Director’s commission for standing as guarantor to bankers.
- Remuneration received by Members of Parliament.
- Income from sub-letting of House Property by a tenant, etc.
This is an inclusive list and not an exhaustive list. Please note that Agricultural income is exempt from tax so it will not fall under any of the heads of income. It will be mentioned as exempt income while e-filing the Income Tax Return.
In addition to above, the following incomes are charged to tax under this head, if not taxed under the head “Profits and Gains of Business or Profession”.
- Any contribution to a fund for the welfare of employees received by the employer.
- Income by way of interest on securities.
- Income from letting out or hiring of plant, machinery or furniture.
- Income from letting out of plant, machinery or furniture along with building where both the lettings are inseparable.
- Any sum received under a Keyman Insurance Policy including bonus.
Taxability of Income from Other Sources
Taxability of incomes falling under this head may differ as per their nature. Let’s have a look at the tax treatment on some of these incomes:
Taxability of Gifts:
Gifts can mainly be classified under following categories:
- Monetary gifts.
- Movable properties received without consideration or without adequate consideration.
- Immovable properties received without consideration or without adequate consideration.
Gifts will be completely taxable under the head income from other sources with following exceptions:
- Some of money received as gift will be exempt if the aggregate value of such received during a financial year does not exceed Rs. 50,000.
- Any property received without consideration and total fair market value of such properties received throughout the year does not exceed Rs. 50,000.
- Gifts received from relatives*.
- Gifts received on occasion of the marriage.
- Gifts received under will/by way of inheritance.
- Gifts received in contemplation of death of the payer.
- Gifts received from local authority.
- Gifts received from a fund, foundation, university, other educational institution, hospitals, or any trust or institution defined in Section 10(23C).
- Amount received from a charitable trust registered under Section 12AA.
*Relatives for this purpose means:
|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 of the parents of the individual|
|e.) Any lineal ascendant or descendent of the individual||f.) Any lineal ascendant or descendent of the spouse of the individual|
|g.) Spouse of the person referred to in (b) to (f)|
Tax Treatment of Amount received from Life Insurance Policy:
Any amount received under Life Insurance policy, including any bonus amount, is exempt from tax under section 10(10D) of the Income Tax Act. A few important points to be noted with regards to this exemption:
- Exemption is available only in respect of amount received from Life Insurance policy.
- Exemption is available only if amount of premium paid on such policy for a particular financial year does not exceed 20% (10% in respect of policies taken on or after 1st April, 2012) of the actual capital sum assured. Please note that any amount received on death of the policyholder will continue to be exempt without any conditions.
- While calculating the actual sum assured, any premium amount agreed to be returned or any of the benefits by way of bonus shall not be considered.
Let’s take a look at a scenario for better understanding:
Pratik has taken a Life Insurance policy on 15th December 2014. Total sum assured is Rs. 50,00,000 and annual premium is Rs. 82,000. The policy will mature in the year 2026 and the maturity amount will be Rs. 10,00,000.
- Now in the event of Pratik’s death, the amount sum assured of Rs. 50,00,000 received by the nominee will be completely exempt.
- In any other case, the amount received from the policy will be exempt if the annual premium of the financial year does not exceed 10% of the capital sum assured. Here the capital sum assured is Rs. 50,00,000 so 10% of 50,00,000 comes to Rs, 5,00,000. The annual premium paid by Pratik is only Rs. 82,000 so nothing will be taxable if money is received in an event other than death.
Tax Treatment for Dividend Income:
- Dividend income is chargeable under this head. However it will be completely exempt if it is received from a company was applicable to dividend distribution tax under section 115-O of the Income Tax Act.
- This exempt dividend will be mentioned under exempt income while e-filing the Income Tax Return.
- Dividend received from co-operative societies or foreign companies will be completely taxable.
Tax Treatment for Interest Income:
Taxability of interest income may vary, depending on the nature of interest income.
- Although Interest on savings bank account is taxable, deduction u/s 80TTA is available for maximum limit of Rs. 10,000.
- Interest earned on tax-free bonds is completely exempt.
- Interest on Fixed deposit and recurring deposits is completely taxable. If the total interest income from such sources exceeds Rs. 10,000, then the banks will deduct the TDS @ 10%. (@ 20% if the PAN is not provided).
- Interest on Public Provident Fund (PPF) account is completely exempt.
- Any interest earned on the post office saving bank account is exempt upto a certain extent. In case of Individual account, interest is exempt upto Rs. 3500 & in case of Joint account, interest is exempt upto Rs. 7000.
Can I claim any expenses from incomes under this head?
Yes, following are some of the deductions available from income chargeable to tax under the head Income from Other Sources:
- Any commission or remuneration paid for realising dividend (taxable dividend) or interest on securities.
- Any current repairs, insurance premium and depreciation in respect of plant, machinery, building and furniture are deductible from the rent income earned by letting out of such plant, machinery, building and furniture.
- In case of family pension, deduction is allowed for the lower of Rs. 15,000 or 1/3rd of such amount received in the nature of family pension.
- Please note that no personal expenditure shall be allowed to be deducted from income chargeable under the head ‘Income from Other Sources’.
Frequently Asked Questions
1. Is gift taxable as other income?
Gifts from relatives are exempt and any gifts received from non relatives are exempt upto an aggregate of Rs. 50,000 in a Financial year. Total value of gifts over and above Rs. 50,000 will be taxable under the head ‘Income from Other Sources’. Gifts received on the occasion of marriage are exempt from thax. Read here to know more about Gifts and thier taxability.
2. Can I claim any deductions on family pension?
As per Income Tax Act, you can claim a standard deduction of 1/3rd of the amount of family pension received subject to maximum of Rs. 15,000 annually.
3. Is lottery prize taxable?
Yes, lottery winnings are liable to flat rate of tax at 30% without any basic exemption limit. In such a case the payer of prize money will generally deduct tax at source (i.e., TDS) from the winnings and will pay you only the balance amount.