Income from Other Sources

Tax on Income from Other Sources

Income from Other Sources (amended till Finance Act 2021)

What Income from Other Sources includes?

According to Section 56 (1) of Income Tax Act, 1961, income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any other heads.

Further, according to Section 56(2) of Income Tax Act, 1961, following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely:—

  1. Dividends (click here for detailed tax treatment of dividend)
  2. Casual Income like any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. 
  3. Amount not deposited by Employer: Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees (where employer has not deposited by such sum in accordance with the provisions of this Act)
  4. Interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;
  5. Income from letting, if not charged under the head “Profits and gains of business or profession”
    • Income from machinery, plant or furniture belonging to the assessee and let on hire
    • Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting
  6. Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”;
  7. Income by way of interest received on compensation or on enhanced compensation.
  8. Earnest Money/Advance received on capital asset: any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if,—

    (a) such sum is forfeited; and
    (b) the negotiations do not result in transfer of such capital asset.

  9. Compensation on termination/modification of employement: any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto.

  10. Securities Premium received by Closely Held Company

  11. Gifts (click here for detailed tax treatment of Gifts)

Income from Other Sources List not specified under Section 56(2)

Some other income chargeable under the head “Income from other Sources”

  • any fee or commission received by an employee from a person other than his employer
  • any annuity received under a will
  • family pension
  • all interests other than interest on securities
  • income of a tenant from sub-letting the whole or part of the house property
  • remuneration received by a teacher or a lawyer for doing examination work
  • income of royalty (if it not an income from business or profession)
  • director’s sitting fees
  • Director’s commission for giving bank guarantees to bank;
  • Director’s commission for underwriting shares of new company;
  • Gratuity received by a director who is not an employee of his employer
  • Interest on delayed refunds from Government
  • rent of land not appurtenant to any building
  • agricultural income from land situated outside India
  • income from leasehold property
  • remuneration received for writing articles in journals
  • income from undisclosed sources (e.g. incomes referred to in section 68, 69, 69A, 69C, 69D)
  • insurance income
  • Interest on securities of co-operative societies

Tax Treatment of Securities Premium received by a Closely Held Company

Where a closely held company, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received—

  1. by a venture capital undertaking from a venture capital company or a venture capital fund or a specified Fund (Category I or a Category II Alternative Investment Fund); or
  2. by a company from a class or classes of persons as may be notified by the Central Government in this behalf.

Thus, here following conditions should be satisfied:

  • Shares are issued by closely held company.
  • Shares are issued to a person resident in India
  • Shares are issued for a consideration more than face value of shares.
  • Shares are issued for a consideration more than FMV of shares.

Illustration 1:
XYZ Ltd. (a closely held company) issued 1000 shares (face value is Rs. 10 per share) for Rs. 20 per share to a resident individual. Fair Market Value per share is Rs. 15. Is Securities Premium charged by the company is liable to tax?

Solution: Yes. The difference between Issue Price and FMV is taxable under the head “Other Sources”.

So, 1000 X (20-15) = 5000 shall be considered as the income of the company.

Points to Consider:

  • Company issued shares to a resident individual
  • Company issued shares for a consideration more than face value of shares.
  • Company issued shares for a consideration more than FMV of shares.

Illustration 2:
Deep Gyan Pvt. Ltd. (a closely held company) issued 1000 shares (face value is Rs. 10 per share) for Rs. 12 per share to a resident individual. Fair Market Value per share is Rs. 15. Is Securities Premium charged by the company is liable to tax?

Solution: No. Although, company has issued shares above face value, but at a value less than FMV. Thus, nothing shall be taxable.

Tax Treatment of Casual Income

Meaning of Casual Income
Casual Income includes income which depends entirely on luck like income by way of winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.

Taxability of Casual Income
As per section 58(4),

  • no deduction in respect of any expenditure or allowance in connection with these incomes shall be allowed to the assessee.

ExplanationFor the purpose of this section,—

  • Lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner, under any scheme or arrangement;
  • Card game and other game of any sort includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game.

Tax Rates Casual Incomes like winnings from lotteries, crossword puzzles, races, card games etc. whatsoever (Section 115B and 115BB)
In respect of incomes by way of winnings from any lottery or crossword puzzle or race including horse race (other than the income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting, the income-tax shall be payable, @ 30% (plus applicable surcharge plus HEC @ 4%).

Rate of TDS on Casual Incomes:
The rate of TDS in case of these incomes is 30%, if the income exceeds

  • 10,000 in case of winning from horse races (Section 194BB) and
  • 10,000 in case of other lottery incomes (Section 194B).

Grossing up:

  • If assessee receives the net amount (e. amount of total income less TDS) then, such net amount shall be grossed up, to find out the amount chargeable to tax.

Grossing up =   Net amount X 100 
                                 100 – Rate of TDS                                     

Following income are not chargeable as casual income under the head “income from other sources”

  • Winning From Lottery held at stock in trade (chargeable under the head “profit and gains of business or profession”)
  • Income of jockey (chargeable under the head “profit and gains of business or profession”)
  • Winning from a motor car rally (taxable as normal income as it includes skills and efforts)

Deductions allowed from Income from Other Sources (Section 57)

The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely:—

In the case of dividends or income from units of mutual funds
The assessee can claim deduction of only interest expenditure which has been incurred to earn that dividend income to the extent of 20% of total dividend income. No deduction shall be allowed for any other expenses including commission or remuneration paid to a banker or any other person for the purpose of realising such dividend.

In the case of interest on securities
Assessee can claim deduction of any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such interest on behalf of the assessee;

In the case of any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees
Assessee can claim deduction of the amount which is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date;

In the case of income in the nature of Family Pension
Assessee can claim deduction of a sum equal to

    • 33.33% (one-third) of such income or
    • 15,000

whichever is less.

In the case of interest on compensation or enhanced compensation
Assessee can a deduction of a sum equal to 50% of such income and no other deduction shall be allowed under any other clause of this section.

Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession
Assessee can claim deduction of the expenses incurred on following:

    • current repairs of building
    • insurance premium
    • repair and insurance of machinery, plant or furniture
    • depreciation

Further, any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;

Deductions not allowed from Income from Other Sources (Section 58)

Subsection 1
In the case of any assessee, the following amounts shall not be deductible in computing the income chargeable under the head “Income from other sources”,—

  1. any personal expenses of the assessee;
  2. any interest chargeable under this Act which is payable outside India on which tax has not been paid or deducted at source;
  3. any payment which is chargeable under the head “Salaries”, if it is payable outside India, unless tax has been paid thereon or deducted therefrom at source;

Subsection 4 (No deduction in respect of casual income)
In the case of an assessee having income chargeable under the head “Income from other sources”,

  • no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever.

This sub-section shall not be applicable in computing the income of an assessee, being the owner of horses maintained by him for running in horse races (upon which wagering or betting may be lawfully made), from the activity of owning and maintaining such horses.

It means owner of horses maintained by him for running in horse races may claim deduction in respect of any expenditure related to such maintenance.

Income from Other Sources Tax Rate

Income from other sources is taxed at normal tax rates (slab rates or flat rates as may be applicable in case of a concerned assessee).

But there are few exceptions, like in the case of casual income which is taxable at a flat rate of 30% without any deduction.

Income from Other Sources MCQs


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The amount deductible from family pension is upto —
Calculate the Income Taxable under the Head “Other Sources”

Sameer received the following income during financial year 2013-14:

  • Director’s fees 5,000,
  • Income from agricultural land in Pakistan 15,000,
  • Rent from let-out of land in Jaipur 20,000,
  • Interest on deposit with HDFC Bank 1,000 and
  • Dividend from Indian company 5,000.

Assuming that Income from agricultural land in Pakistan is not from the business activity.

In the previous year, Akshay received a gift of Rs. 35,000 each from his three friends. The amount chargeable to tax in this case would be —
Under the Income-tax Act,1961, dividend derived from the shares held as stock-in-trade are taxable under the head —
John, engaged in fertiliser trade, received rent by sub-letting a building. This will be taxable under the head —
Which of the following income will be taxable as income from other sources —
Ms. Sitara is in receipt of family pension of 15,000 p.m. during 2020-21. Income chargeable to tax for assessment year 2021-22 of Ms. Sitara is —
A private limited company engaged in manufacturing activity had general reserve of 20 lakh. It granted a loan of 5 lakh to a director who held 13% shareholding cum voting rights in the company. The said loan was re-paid by him before the end of the year. The amount of deemed dividend arising out of the above transaction is —
Rajiv (aged 28 years) received cash gift of 2 lakh on the occasion of his marriage. It includes gift from non-relative of 80,000. His income by way of lottery winnings is 3 lakh. His net income tax liability (ignoring TDS) would be —
Rishabh received the following gifts during the previous year :(i) Rs. 50,000 from his employer
(ii) Rs. 1,00,000 from mother’s sister
(iii) Rs. 10,000 from his friend on the occasion of his marriage
(iv) Rs. 60,000 in the form of scholarship from a registered charitable trust.

The amount of taxable gift under the head ‘income from other sources’ is —
A lady received gifts worth 1,00,000 from her relatives as defined under the Income tax Act, 1961 and 60,000 from her office colleagues on her marriage anniversary. The taxable amount of gifts would be —
R has taken a house on rent and sublets the same to G. Income from such house property shall be taxable under the head :
Rakesh acquired a motor car for Rs. 3,00,000 from his friend (non-relative) when the fair market value of the motor car was Rs. 5,00,000. The amount liable to tax in the hands of Rakesh from the transaction is:
Libra P. Ltd. engaged in trading activity had accumulated profits of Rs. 15,00,000 as on 1-4-2020, Mr. Gautam having 30% of the equity shares and voting rights in the company received Rs. 5 lakhs as loan on 1-6-2020 from the company. The loan was repaid by him on 30-11-2020. The amount liable to tax in the hands of Mr. Gautam as deemed dividend is :
Where a firm or closely held company received from any person any property being shares of closely held company without consideration :
Agni (P) Ltd issued equity shares of Rs. 10 each at Rs. 40 per share. The fair market value of the share on the date of issue was ascertained as Rs. 25 per share. The company issued 1,00,000 equity shares. The amount liable to tax in the hands of the company would be:
In the hands of Mr. Sarath, a salaried employee, the following income shall be chargeable to tax as income under the head “Income from other sources” :(i) Dividend
(ii) Income from hiring of machinery
(iii) Winning from Lottery
(iv) Interest on securities
Babu Lal won a prize of Rs. 1,00,000 in Rajasthan State Lottery and Lottery Department paid him an amount of Rs. 70,000 after deduction of tax at source of Rs. 30,000. He had purchased lottery tickets for Rs. 8,000. The amount chargeable to tax in the hands of Babu Lal under other sources shall be :
State which out of the following gifts received during the year by Girish from different persons shall be subject to tax :(i) Wrist watch of Rs. 75,000 given by a non-resident friend.
(ii) Cash of Rs. 51,000 given by elder brother.
(iii) Cash of Rs. 21,000 each given by 4 friends on his birthday.
(iv) Painting of Rs. 30,000 given by employer on his birthday.
Which section provides for deduction of tax at source on distribution or payment of dividend by an Indian Company?

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