Income from other Sources:
Basis of charge [Section 56(1)]
This is the last & residual head of charge of income. A source of income which does not
specifically fall under any one of the other four heads of income, is to be
computed and brought to charge u/s 56 under the head, "Income from other sources.
As per the provisions of S.56(1) income of every kind, which is excluded in other four specific
heads of income mention above, is charged to income tax under this head of income.
Provisions of S.56(2) are more specific and enlists various incomes which are taxable under the
head of 'Income from Other Source'.
"Income from other sources" is the residual head of income. Hence, any income which is not
specifically taxed under any other head of income will be taxed under this head. Further, there
are certain incomes which are always taxed under this head. These incomes are as follows:
As per section 56(2)(i), dividends are always taxed under this head. However, dividends from
domestic company other than those covered by section 2(22)(e) are exempted from tax under
section 10(34). Winnings from lotteries, crossword puzzles, races including horse races, card
game and other game of any sort, gambling or betting of any form whatsoever, are always taxed
under this head. Income by way of interest received on compensation or on enhanced
compensation shall be chargeable to tax under the head "Income from other sources", and such
income shall be deemed to be the income of the year in which it is received, irrespective of the
method of accounting followed by the assessee.
However, a deduction of a sum equal to 50% of such income shall be allowed from such income.
Apart from this, no other deduction shall be allowed from such an income. Gifts received by an
individual or HUF (which are chargeable to tax) are also taxed under this head.
In addition to above, 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 welfare of employees received by the employer. [Section
56(2)(ic)].
● Income by way of interest on securities. [Section 56(2)(id)].
● Income from letting out or hiring of plant, machinery or furniture. [Section 56(2)(ii)].
● Income from letting out of plant, machinery or furniture along with building; both the
lettings are inseparable. [Section 56(2)(i)].
● Any sum received under a Keyman Insurance Policy including bonus.
[Section 56(2)(iv)].
Deductions Allowable [Section 57]
The following expenditure can be claimed as deductions from gross total income. - Collection
Charges, Interest on Loan, Any other expenditure which is not of capital nature, but expended
wholly and exclusively for the purpose of earning of such income.
Deductions not Allowable [Section 58]
The following expenses are not allowable as expenditure while computing Income from Other
Sources.
● Any personal expenses of the assessee;
● Any interest paid outside India on which tax has not been paid or deducted at source,
● Salaries paid outside India on which tax has not been paid or deducted at source.
● Any expenditure incurred in cash above Rs.20,000/- and any payments made to near
relatives which are excessive or unreasonable, according to the Assessing offer.
● Income tax/Wealth tax payment.
● Any expenditure incurred in connection with Winning of Lottery, crossword puzzles etc.
Deemed Income Chargeable to Tax [Section 59]
Provisions of Section 59 are similar to that of Section 41(1) of the Income Tax Act.
These provisions are related to the recovery against any deduction. If any deduction is allowed in
respect of loss, expenditure, etc. During any previous year while computing the income from
business/profession and in subsequent year such amount of deduction is recovered, then the
amount so recovered shall be treated as income under the head of Income from Other Source
'Chargeable to tax'.
