Income from Other Sources
The income that does not fall under the four heads, i.e., income from salary,
income from house property, income from business or profession or capital
gains, is taxed under the head 'income from other sources', e.g., interest
income from bank deposits, winning from lottery, any sum of money
exceeding Rs. 50,000 received from a person (other than from relative, on
marriage, under a will or inheritance).
Income treated as income from other sources: Section 56
a. Dividend.
b. Interest on securities if not chargeable.
c. Wining from lotteries, crossword puzzles, races etc.
d. Income from machine, plant or furniture let on hire.
e. Income from machinery, plant, or furniture with building.
e. Sum received under Keyman insurance policy including bonus.
The following incomes are treated as income from other sources:
f. Interest received from banks on saving bank accounts.
g. Interest received from banks on fixed deposits.
h. Interest received from bonds or debentures.
i. Interest received on refund of any tax amount.
e. Interest and premium received on redemption (recovery) of debentures.
f. Fees from tuitions and examinations etc.
g. Royalty received.
h. Any income received by beneficiary of a trust.
i. Amount of interest accrued (to accumulate over time) on National Savings
Certificate, National Savings Scheme Account, Kisan Vikas Patra etc.)
j. Income from agricultural land which is situated outside India.
k. Any amount received as family pension by a family member.
l. Rent received from plot of land and ground rent (rent paid under the terms of a
lease by the owner of a building to the owner of the land on which it is built).
m. Any income received from any undisclosed sources.
n. Salary received by Members of Parliament.
o. Income received from letting out the space for hoardings.
Taxability of Dividends: Section 56 (2)(i)
The term dividend is defined in Section 2(22). Dividend is taxable u/s 56 whether it
is paid in cash or in kind and whether such shares are held by the assessee as
investment. Tax treatment of dividend are discussed below –
1. Domestic Company - a) As per section 10(34) it is exempt from tax.
Dividends from domestic company are normally exempt from tax, as the
company declaring dividend pays dividend distribution tax.
b) As per section 115BBDA such dividend is taxable if Gross dividend Exceeds
Rs. 10 Lakhs.
2. Non – Domestic Company - Taxable in the hands of the shareholder.
Taxability of winning lotteries, cross word puzzles, Online/TV game shows,
horse race, will be taxable under the head income from other Sources. The
income will be taxable at the flat rate of 30% which after adding cess will
amount to 31.2%.
No deduction under section 80C or 80D or any other deduction/allowance is
allowed from such income.
Interest on securities taxability: As per provisions of Section 193, any person who
is paying interest on securities to a resident is required to deduct TDS. The Deductor
is liable to deduct TDS @ 10% plus surcharge plus 2% education cess.
*A security is a financial instrument, typically any financial asset that can be traded
Case Laws:
East West Hotels Ltd. v. Deputy Commissioner of Income Tax, 2009 309 ITR 149, lease of
hotel under agreement – agreement for lease for 33 years with option of further renewal
for 33 years – assessee having no intention to resume hotel business – amount received by
assessee is income from other sources and not business income.
CIT v. Autokast Ltd., 2001 248 ITR 110 (SC), assessee kept money borrowed from
Industrial Development Bank of India for purchase of plant and machinery - in short-term
deposits with bank and used it in bill discounting until payment for the plant and
machinery. Interest earned on deposits is taxable under income from other sources.
Malabar Industrial Co. Ltd. v. CIT 2000 243 ITR 83 (SC), Agreement for
sale of rubber plantation - Consideration payable in installments - Purchaser
failed to adhere to time schedule - Parties agreed to extension of time for
payment of installments on condition of the purchaser paying compensation
- Amount received as compensation is taxable under the head income from
other sources.
Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT, 1997 93 Taxman ITR
172 (SC), it has been held that the interest earned on short term investment
of funds borrowed for setting up of factory during construction of factory
before commencement of business has to be assessed as income from other
sources.
Tax Deduction Allowed for Income from Other Sources (Section 57):
1. In the case of dividend income (and interest on securities: any reasonable sum paid by
way of remuneration or commission for the purpose of realizing dividend or interest.
2. In the case of income in the nature of family pension:
Rs. 15,000 or
33 1/3 % (33.33%) of such income,
whichever is lower
3. In the case of income from machinery, plant or furniture let on hire:
repairs to building [section 30(a)(ii)]; unabsorbed depreciation [section 32(2)].
current repairs to machinery, plant or furniture and insurance premium [section
31];
depreciation on building, machinery, plant or furniture [section 32]; and
4. Any other expenditure (not being a capital expenditure) expended wholly and
exclusively for the purpose of earning of such income.
5. In the case of interest on compensation or enhanced compensation: 50 per cent of
such interest (applicable from the assessment year 2010-11).
Tax Deduction NOT allowed (Section 58): The following expenses are not
deductible by virtue of section 58 in computing the income chargeable under the head
'Income from Other Sources':
(i) Any personal expenses of the assessee is not deductible.
(ii) Interest, Salary payable/paid outside India on which TDS is
not made
(iii) Any payment of direct taxes like Income Tax / Wealth Tax,
excessive payments to related or relatives
(iv) Expenditure in respect of Royalty and Technical Fees
received by a Foreign Company
(v) Expenditure in respect of Winning from Lottery, 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.
