Income from Other Sources

Which income falls under Other sources

It is residuary head of Income and to qualify as an income from other sources  following conditions have to be met-

  1. There must be an income;
  2. This income is NOT exempt under the IT Act 1961; and
  3. This income is not chargeable to tax under the other heads of income viz. “Salary”, “House property”, “Business or Profession” and “Capital Gains”.

It includes earnings which can’t be listed under any of the other heads of income viz. Income from Salary, Income from House Property, Profits and Gains from Business or Profession and Income from Capital Gains.

All taxable income under this head is calculated in accordance with the accounting method used by assessee viz. accrual or cash basis. But in case of dividend and interest income, assessee will have to declare and pay tax on dividend and interest earned during the previous year, since these two are an exception irrespective of the accounting method used.

To decide whether the income will be accounted under the head of income from other sources depends on the nature of income earned, for that certain standard inclusions are listed below-

1.Dividends:Income by way of dividend is shown under this head. Deemed dividend as under section 2(22)(e) is fully taxable as is dividend from co-operative societies and foreign companies. Dividend not chargeable to tax includes dividends exempt U/S 10(34) i.e. dividend from Indian companies, dividend liable to corporate dividend tax, income on mutual fund units or income from UTI unit holder.

2.Winnings:This includes winnings over Rs10,000 from lotteries, puzzles, races, games and all forms of gambling and betting. E.g. card games, horse races, game shows etc.

3.Interest received: Income earned from interest in the previous year (on compensation/enhanced compensation) is taxable. However, 50% of this income can be claimed as deduction.

4.Incomes not declared under the head ‘Profits and Gains of Business or Profession’:  Contributions made to an employer’s employee welfare fund, interest earned on securities, rental income from furniture, plant and machinery (including building where it cannot be let out separately),

5.Gifts: These gifts can be monetary or non- monetary (all immovable property and some movable property) which are received without any consideration or adequate consideration. Check here for taxability of gifts

Example of Income from Other Sources

Some examples of certain incomes normally taxed under this head are given below:

  • Interest on bank deposits, loans or company deposits,
  • Dividend;
  • Family pension (received by legal heirs of an employee),
  • Income from sub-letting of house property by a tenant,
  • Agricultural income from agricultural land situated outside India,
  • Interest received from IT Dept. on delayed refunds,
  • Remuneration received by Members of Parliament,
  • Casual receipts and receipts of non-recurring nature,
  • Insurance commission,
  • Examiner-ship fees received by a teacher (not from employer),
  • Income from royalty,
  • Director’s commission for standing as guarantor to bankers,
  • Winnings from Lotteries, Crossword Puzzles, Horse Races and Card Games,
  • Interest on securities,
  • Income from letting out of machinery, plant or furniture, etc.
  • Gifts

Computation of Income from Other Sources

Income from this source is computed after deducting the following:

  1. Expenditure incurred during the previous year;
  2. Expenditure incurred wholly and exclusively for the purpose of earning the said income;
  3. After deducting allowances and deduction provided in Section 57 of the IT Act 1961;

And after forbidding the following:

  1. Expenditure relating to personal expenses
  2. Interest, salary payable outside India on which TDS not made,
  3. Income / Wealth Tax paid, excessive-payments to relatives etc.
  4. Expenditure in respect of royalty and technical fees received by a foreign company;
  5. Expenditure in respect of winning from lottery.

Set-off & Carry forward of losses under other sources

  • Losses under other sources can be set off against income from any other head.
  • Loss from owning & maintaining race horses can be adjusted only against income from owning & maintaining race horses. The unadjusted loss can be carried forward for 4 years and are adjustable only against income from owning & maintaining race horses
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