Income from Other Sources is one of the five heads of income. Any income which is not specifically taxable under any other head of income will be taxable under IFOS. For e.g., Gifts, dividends, etc., are taxable under IFOS.
- Which Income Sources does IFOS Cover?
- Taxability of Income from Other Sources (IFOS)
- Can I claim any expenses from Incomes from Other Sources (IFOS)?
- What tax deduction cannot be claimed under Income From Other Sources?
Which Income Sources does IFOS Cover?
The following are some of the income sources that are taxable under the head ‘income from other sources-(IFOS)’.
- Dividends from companies
- Winnings from lotteries, crossword puzzles, races including horse races, card games, gambling, betting, or any other similar games
- Income by way of interest received on compensation or on enhanced compensation
- 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 machinery, plant, or furniture
- Income from royalty
- Any sum received under a Keyman Insurance Policy including a 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
- Agricultural income exceeding INR 5000
This is an inclusive list and not an exhaustive list.
In addition to the 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 from
- Interest on securities.
- Letting out or hiring of plant, machinery, or furniture.
- Letting out of plant, machinery, or furniture along with building where both the lettings are inseparable.
Taxability of Income from Other Sources (IFOS)
The 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:
Gift Tax: Taxability on Gifts
Gifts can mainly be classified under the 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 taxable under the head income from other sources as per the slab rates.
However, below are the following exceptions:
- Gifts will be exempt if the aggregate value received during a financial year does not exceed INR 50,000.
- Any property received without consideration and the total fair market value of such properties received throughout the year does not exceed INR 50,000.
- Gifts received from relatives:
- On the occasion of the marriage.
- Under will/by way of inheritance.
- In contemplation of the death of the payer.
- From local authority.
- A fund, foundation, university, other educational institution, hospital, or any trust or institution defined in Section 10(23C).
- The amount received from a charitable trust registered under Section 12AA.
Tax Treatment on Life Insurance Policy
Any amount received under a Life Insurance policy, including any bonus amount, is exempt from tax under section 10(10D) of the Income Tax Act. However, a few important points to be noted with regard to this exemption:
- The exemption is available only in respect of the amount received from the Life Insurance policy.
- The exemption is available only if the 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 the 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 an example to understand the same:
Pratik has taken a Life Insurance policy on 15th December 2014. The total sum assured is INR 50,00,000 and the annual premium is INR 82,000. The policy will mature in the year 2026 and the maturity amount will be INR 70,00,000.
- Now in the event of Pratik’s death, the amount sum assured of INR 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 INR 50,00,000, so 10% of 50,00,000 comes to INR 5,00,000. The annual premium paid by Pratik is only INR 82,000 so nothing will be taxable if money is received in an event other than death.
Tax on Dividend Income
- Dividend income is chargeable under IFOS as per the slab rates.
- Dividends received from cooperative societies or foreign companies will be completely taxable as per the slab rates.
Tax on Interest Income
The taxpayer is entitled to pay tax on FD interest income and recurring deposits. Furthermore, if the total interest income from such sources exceeds INR 10,000, then the banks will deduct the TDS @ 10%. (@ 20% if the PAN is not provided).
The taxpayer is entitled to pay tax on savings bank account interest and post office deposits. However, they are tax deductible u/s 80TTA/80TTB to a certain limit.
Tax Exempt Interest Income
Below interest income are completely exempt in the hands of taxpayers:
- Interest earned on tax-free bonds
- Interest in Public Provident Fund (PPF) account
- Any interest earned on the post office saving bank account is exempt up to a certain extent. In case of an Individual account, interest is exempt up to INR 3500 & in the case of a Joint account, interest is exempt up to INR 7000.
Can I claim any expenses from Incomes from Other Sources (IFOS)?
Yes, the 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 realizing dividend (taxable dividend) or interest on securities.
- Any current repairs, insurance premiums, 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 the case of family pension, the deduction is allowed for the lower of INR 15,000 or 1/3rd of the such amount received in the nature of family pension.
Note: No personal expenditure shall be allowed to be deducted from income chargeable under the head ‘Income from Other Sources’.
What tax deduction cannot be claimed under Income From Other Sources?
According to section 58 of the Income Tax Act, the following are deductions that can not be claimed during the computation of Income from Other Sources;
- Amount mentioned as per section 40A
- Any personal expenses
- Amount paid towards wealth tax
- Expenses associated with winnings from lotteries, races, crossword puzzles, games, gambling, or betting
- A salary that is payable outside India on which tax is not deducted at the source
- Any interest subject to tax that is payable outside India
Gifts from relatives are exempt and any gifts received from non-relatives are exempt up to an aggregate of INR 50,000 in a Financial year. Hence, the total value of gifts over and above INR 50,000 will be taxable under the head ‘Income from Other Sources’.
As per Income Tax Act, you can claim a standard deduction of 1/3rd of the amount of the family pension received subject to a maximum of INR 15,000 annually.
Yes, lottery winnings are liable to a flat rate of tax at 30% without any basic exemption limit. Thus 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.
Yes, dividend income is fully taxable under IFOS.