1. Chargeability of Incomes
As per Section 56(1), 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 of the first four heads specified in Section 14.
In other words, the following conditions must be satisfied before an income can be taxed under the head “Income from Other Sources”:
- there must be an income;
- such income is not exempt under the provisions of this Act;
- such income is not chargeable to tax under any first four heads viz., “Income from Salary”, “Income from House Property”, “Profits and Gains of Business or Profession” and “Income from Capital Gain”.
|Name of Incomes||Descriptions|
|1. Dividend||Dividends, other than the dividends referred to in section 115-O. However, w.e.f. A.Y. 2017- 18, certain dividends received from domestic companies shall be chargeable to tax in accordance with the provisions of section 115BBDA even if the tax has been paid by the domestic company under section 115-O;|
|2. Winning from Lotteries, etc.||It includes 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. These receipts are chargeable to tax under the head “Income from other sources”.|
|3. Employees’ Contribution towards Staff Welfare Scheme||Any sum received by the assessee from his employees as contribution to any provident fund, or any other welfare fund for the employees provided it is not taxable under the head ‘Profits and Gains of Business or Profession’.|
|4. Interest on Securities||Interest on debentures, Government securities/bonds is taxable under the head “Income from other sources” provided the income is not chargeable to Income-tax under the head profits and gains of business or profession.|
|5. Rental Income of Machinery, Plant or Furniture||Income from machinery, plant or furniture belonging to the assessee and let on hire, provided the income is not chargeable to Income-tax under the head profits and gains of business or profession.|
|6. Rental income of letting out of Plant, Machinery or Furniture along with letting out of Building and (the two lettings are not separable)||Where the assessee lets on hire, the machinery, plant or furniture belonging to him and also buildings, and letting of 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.|
|7. Sum Received under Keyman Insurance Policy||any sum received under a Keyman Insurance Policy, including the sum allocated by way of bonus on such policy, if such income is not taxable under the head “Salaries” or “Profits and gains of business or profession”.|
|8. Gift||Any sum of money, the aggregate value of which exceeds Rs. 50,000 is received without consideration or property (whether movable or immovable) is received without consideration or property is received for an inadequate consideration by any person on or after 1.4.2017, if the amount of such gift or inadequate consideration exceeds Rs. 50,000|
|9. Interest on Compensation or Enhance Compensation||Income by way of interest received on compensation or on enhanced compensation shall be assessed under the head “Income from other sources” in the year in which it is received. However, 50% of such interest is deductible under section 57(iv). Consequently, only 50% of such interest is taxable.|
|10. Advance Money Received in the course of negotiations for transfer of a Capital Asset.||Where any sum of money, received as an advance or otherwise in the course of the negotiations for transfer of a capital asset, is forfeited and the negotiations do not result in transfer of such capital asset, then, such sum shall be chargeable to income-tax under the head “Income from other sources”.|
|11. Compensation on Termination of Employment or Modification of Terms of Employment||Any compensation or other payment referred to in section 56(2)(xi) [i.e., compensation on termination of employment or modification of terms of employment] is treated as income from other sources.|
2. Examples of Incomes Included under the head ‘Income from Other Sources’
Following are some of the other incomes which are normally chargeable to tax under this head because these are not covered under any of the four specified heads:
- income from sub-letting of a house property by a tenant;
- casual income;
- insurance commission;
- family pension (payments received by the legal heirs of a deceased employees);
- director’s sitting fee for attending board meetings;
- interest on bank deposits/deposits with companies;
- interest on loans;
- income from undisclosed sources;
- remuneration received by Members of Parliament;
- interest on securities of foreign governments;
- examinership fees received by a teacher from an institution other than his employer;
- total interest till date on employee’s contribution to an unrecognised provident fund at the time when the payment of lump sum amount from the unrecognised provident fund is due;
- rent from a vacant piece of plot of land;
- agricultural income from agricultural land situated outside India; (xv) interest received on delayed refund of income-tax;
- income from royalty, if it is not income from business or profession;
- Director’s commission for standing as a guarantor to bankers;
- Director’s commission for underwriting shares of a new company;
- Gratuity received by a director who, under the relevant contract, is not an employee or servant of the company, is assessable as income from other sources;
- Income from racing establishment;
- Income from granting of mining rights;
- Income from markets, fisheries, rights of ferry or moorings;
- Income from grant of grazing rights;
- Interest paid by the Government on excess payment of advance tax, etc.;
- Income received after discontinuance of business.
3. Method of Accounting
As per section 145 income, chargeable under this head, is to be computed in accordance with the method of the accounting regularly employed by the assessee. If the books of account are maintained on mercantile system, the income is to be computed on due basis. On the other hand, if books of account are maintained on cash system, income is taxable on receipt basis and expenditure shall be allowed as a deduction on payment basis.
4. Deemed income Chargeable to Tax [Section 59]
Section 59 is similar to section 41(1) of the business income. Accordingly, where an allowance or deduction has been made in the assessment for any year under the head “Income from other sources”, in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year he has obtained, whether in cash or in any other manner, any amount or a remission of any such liability, the amount obtained or the value of benefit, shall be deemed to be the income under the head “Income from other sources” of the previous year in which the amount is received.
These provisions are applicable even in cases of succession and inheritance.
5. Amounts Not Deductible in computing the income under the head ‘Income from Other Sources’ [Section 58]
The following payments shall not be deductible in computing the income chargeable under the head ‘Income from Other Sources’:
(a) personal expenses of the assessee;
(b) 30% of any sum payable to a resident on which tax is deductible at source under section 192 to section 194LA and such tax has not been deducted or after deduction has not been paid on or before the due date specified in section 139(1) [W.e.f. A.Y. 2018-19];
(c) interest paid outside India on which tax has not been deducted at source;
(d) salaries paid outside India on which tax is not deducted at source;
(e) any expenditure referred to in section 40A like excessive or unreasonable payments to certain specified persons [Section 40A(2)] and payments exceeding `20,000 otherwise than by way of account payee cheque [Section 40A(3)];
(f) Income-tax/wealth-tax paid;
(g) any expenditure or allowance in connection with winning of lottery, crossword puzzles, etc. as already discussed under para 8.6b. However, expenditure incurred by the assessee for the activity of owning and maintaining race horses shall be allowed as a deduction while computing the income from this activity.