Chapter 17

INCOME FROM OTHER SOURCES

Sec Particulars Pg No
56 Basics 17.2
Advance Money Forefeited 17.2
Interest on Compensation & Enhance Compensation 17.2
IMPORTANT AMENDMENTS/
56(2)(x) Taxation of Gifts 17.2
NOTIFICATIONS/CIRCULARS
Property Meaning 17.3 Sr No. Particulars Pg No
Relative Meaning 17.3 1 Taxation of Dividend & Deemed Dividend 17.3
Notification 96/2019 17.3 2 Taxability of Dividend in the hands of 17.4
Casual Income 17.3 Shareholder
Taxation of Dividend & Deemed Dividend 17.3 3 Sec 194 Taxation of Dividend in case of 17.5
8 Dividend Income 17.4 Resident
Taxability of Dividend in the hand of Shareholder 17.4 4 Deduction allowed u/s 57 17.7
Deemed Dividend 17.5
Liability of Company 17.5
194 Taxation of Dividend in case of resident 17.5
195 Taxation in case of NR 17.6
115BBD Dividend received by Indian Co from foreign co 17.6
Shares issued at premium
Family pension
Deduction allowed u/s 57
17.6
17.7
17.7
“
The best
Deductions not allowed u/s 58 17.7 fighter
94(7) Dividend stripping transactions 17.7
is never
94(8) Bonus Stripping transactions 17.7
94(1) Bond Washing Transactions 17.7
angry

IFOS
17.1 ”
CA CS VIJAY SARDA +91 8956651954
 SEC 56 VALIDITY
CONSTITUITIONAL INTEREST ON COMPENSATION &
SEC 56(1): ENHANCE COMPENSATION
Income of every kind which is exempt & not chargeable to Such interest is taxable in IFOS in the year of receipt & 50%
tax under any any of the other head, shall be chargeable under of such interest is allowed as deduction (Sec 57), irrespective
Income from Other Sources. of the year to which it pertains.
Sec.56[2]: SEC 56(2)(x) TAXATION OF GIFTS
1. Casual income. > FMV = Rule 11UA
2. Interest on compensation & enhance compensation.
3. Income from subletting of HP. money Immovebale property movebale property
4. Rent from a vacant plot. Cash,Bank,ECS
Without Inadequate Without Inadequate
5. Composite Rent Non-seperable. received from Consideration: Consideration: Consideration: Consideration:
6. Advance money forfeited. person/persons
in excess of
If SDV exceed If SDV exceed If FMV exceed
50,000
If FMV exceed
50,000 consideration Consideration
7. Director sitting fees. Rs.50,000 “ The Whole if amount of “ The Whole “ The Whole
8. Agriculture Income from foreign. “ The Whole
Amount is SDV is such excess is
more than the
FMV is difference is
Taxable”. Taxable”. Taxable”. Taxable”.
9. Dividend higher of-
1) 50,000
10.Gift 2) amount equal
11. Sum recived under keyman Insurance policy to 10% of
consideration
including sum by way of Bonus.
12.family Pension * Gift by Resident to NR made oustide India shall deemed to accrue or
13.Interest on Loan/ securities. arise in India
* Board shall prescribe transactions undertaken by class of Person to
14.Income of MP,MLA. which Sec 56(2)(10) & 50CA shall not be applicable w.r.rt
15.Interest on income tax refund determination of FMV on unlisted shares
Income tax refund is not an Income
16.Royalty Sec 56(2)(x) applicable only if property is a Capital Asset of recipient,
17.Any compensation or other payment received by if it is Stock in trade then this sec is not applicable (CBDT Circular)
any person in connection with the termination of GIFT RECEIVED FROM FOLLOWING IS EXEMPT:
his employment or the modification of the terms a) Gift from any relative
and conditions relating thereto. b) On the occasion of the marriage of the individual
18.Income from Undisclosed Sources. c) Under a will or by way of inheritance or in contemplation of Death
19.Income from Letting of P&M & Furniture d) From any local authority,University, Educational Institute u/s 10[23]
e) From any trust or institution registered under section 12AA
20.Issue of share @ premium. f) By way of transactions not regarded as transfer under clause (i)
or (iv) / (v) / (vi) / (via) / (viaa) / (vib) / (vic) / (vica) / (vicb)
ADVANCE MONEY FOREFEITED /(vid) / (vii) of sec 47
g) Given by Individual to trust for benefit of Relative.
Forfeited on or after 01.04.2014 is taxable under IFOS h) Such class of person & subject to such condition as may be
prescribed.
IFOS
CA CS VIJAY SARDA +91 8956651954 17.2
 PROPERTY MEANING TAXATION OF DIVIDEND &
i) Immovable property being land or building or both; DEEMED DIVIDEND
ii) Shares and securities iii) Jewellery & Bulllion
From the year 2003 Dividend paid by Company and Mutual Fund was
iv) Archaeological collections v) Drawing
vi) Paintings vii) Any work of art subject to DDT and hence it was exempt in the hands of Shareholder.
viii) Sculptures This was made because it was easier to collect the tax at the single
point however with the advent of technology & tracking system the
PROPERTY MEANING justification of current system of Taxation has outlived itself.
Company used to pay DDT u/s 115O [Discussed here] & mutual Fund
> Spouse of the Individual were liable to Deduct u/s 115R
> Brother/Sister of the Individual/Spouse of the Individual The FA 2020 has abolished the DDT and has moved to the Traditional
> Brother/Sister of either of the Parents of the Individual System of Taxability of Dividend.
> any lineal ascendant/descendant of the Individual
> any lineal ascendant/descendant of the Spouse of the Individual
> Spouse of the person referred to in clause (ii) to (vi) COMPANY’S LIABILITY
> In case of HUF - any member Sec Provisions before 1.4.2020 Provisions after 1.4.2020
115-0 Company is Liable to DDT on Company is not liable to DDT
NOTIFICATION 96/2019 dividend declared & Paid.
194 Company is not liable to Company would be liable to
Sec 56(2)(x) is not applicable if immovable property is received by
a resident of unauthorised colony in national capital territory of Deduct TDS on dividend paid deduct TDS
Delhi, when CG by notification regularise such transaction which are u/s 115-O
based on latest power of attorney, agreement to sell, will / possession 80M Was not in existence. Interoperate Dividend allowed
letter & other document evidencing payment for the right of ownership as Deduction.[Refer section]
or transfer or mortegage in regards to such property.
SHAREHOLDER’S LIABILITY
Stamp Duty Value as on the date of agreement can be considered Sec Provisions before 1.4.2020 Provisions after 1.4.2020
if full / part consideration is received by account payee cheque /
draft / ECS / other mode as may be prescribed (Refer CG) - Shareholder was not liabl Now shareholder is liable to tax
to Tax till ₹10L on dividend from single Rupee.
CASUAL INCOME - The Tax rate beyond ₹10L Now dividend is treated as
was 10% normal income and liable to Tax
Notes: as per slab rate.
1. Sec.58(4),no deduction is allowed from such Income 57 No deduction is allowed Deduction is allowed from
2. U/s 115BB it is taxable @ 30% dividend Income maximum upto
Income by way of from dividend income
3.Deduction u/s 80C-80U is not available 20% of Dividend Income.
Lottery
Horse races 4.Generally casual Income is Received after TDS [Net
of TDS ) Hence we need to Gross up. 10[34] Dividend income is exempt Now this exemption is not
Betting grossing up = Amount received upto ₹10L available.
Card Game 100 -TDS Rate
Crossword puzzel > If Problem gives Net amount gross it
Games of any sort > If nothing is given assume it is Gross up
5. Lottery held as stock in trade taxable in PGBP.

IFOS
17.3 CA CS VIJAY SARDA +91 8956651954
 SEC 8 DIVIDEND INCOME 5) When Dividend is received by Company
Company also invest in the shares of another company & it also
1) Interim Dividend shall deemed to be income of PY in which such receives dividend which is taxable to the Company
dividend is made available by company to member Company at the same time also pays the dividend & therefore,
2) Dividend includes deemed dividend u/s 2(22)(a) to (e). FA’20 has inserted a new section 80M for deduction in respect of
inter-corporate dividends
TAXABILITY OF DIVIDEND IN THE HANDS OF
SHAREHOLDER Sec 80M Deduction in respect of certain inter-corporate dividend
1) From 01.04.20, dividend income is taxable in the hands of shareholder Sec 80M(1) - Where the gross total income of a domestic company in
any PY includes any income by way of dividends from any other
2) The PY in which dividend is taxable : domestic company or a foreign company or a business trust, there
shall, in accordance with and subject to the provisions of this section,
Type of Dividend PY in which it is taxable
be allowed in computing the total income of such domestic company,
Interim Dividend Taxable in the year in which it is received
a deduction of an amount equal to so much of the amount of income
Final Dividend Taxable in the year in which it is decalred at AGM
by way of dividends received from such other domestic company or
Deemed Dividend Taxable in the year in which it is distributed or
Sec 2(22)(a) - (e) paid foreign company or business trust as does not exceed the amount of
dividend distributed by it on or before the due date.
3) Surcharge on Dividend
For Individual & HUF - The surcharge on dividends & capital gains u/s Sec 80M(2) - Where any deduction, in respect of amount of dividend
111A / 112A shall not exceed 15% distributed by domestic company, has been allowed under sub-sec (1)
a) Upto 50lakhs No surcharge in any PY, no deduction shall be allowed in respect of such amount in
b) Exceeds 50L upto 1cr. 10% any other PY.
c) Exceeds 1cr upto 2cr 15%
d) Beyond 2cr. 15% only Explanation - For the purposes of this sec, the expression "due date"
means the date one month prior to the date for furnishing the return of
4) Allowability of Expenses from Dividend Income
income u/s 139(1).
1) Sec 57 provides that while computing the dividend income,
interest expense is allowed lower of
a) Actual interest
b) 20% of dividend income before such deduction
2) No expenses except above shall be allowed as deduction

5) When Dividend is received by NR & Foreign Company

1) Dividend income is taxable (as per Sec 115A the tax rates
will be 20%)
2) The Payer Company shall deduct the TDS u/s 195 @ 20%

IFOS
CA CS VIJAY SARDA +91 8956651954 17.4
 DEEMED DIVIDEND LIABILITY OF COMPANY
Sec
The Payer Company now not liable to deduct Tax u/s 115-O
Particulars Relevant point
2(22)(a) Any distribution by a company, to the extent Amount of dividend =
The Payer Company is liable to deduct TDS u/s 194 in case of Resident
of accumulated profits (capitalised or not), FMV of assets as on whereas Sec 195 in case of Non Resident
resulting release of its assets to its shareholders the date of distribution
#Issue of bonus shares is not deemed dividend.
# When assets are distributed, FMV of asset as
has to be taken for
calculation of dividend
SEC 194 TAXATION OF DIVIDEND IN
on date of distribution has to be taken. CASE OF RESIDENT
2(22)(b) Any distribution to its shareholders by a Co If bonus shares are
> of debentures/debenture-stock/deposit issued to equity Payer [Deductor] Principal officer of any Indian Co / a company which
certificates, shareholders, it does has made prescribed arrangements for the declaration
> of bonus to its preference shareholders, not amount to and payment of dividends (including dividends on
> to the extent of accumulated profits distribution of dividend.
preference shares) within India
(capitalised or not).
Payee[Deductee] Shareholder being Resident
2(22)(c) Any distribution to the shareholders of a Co on In such case, there will
Limit The dividend is paid by the company by any mode other
its liquidation, to the extent of its accumulated be no CG in the hands
profits (capitalised or not). of the CO u/s 46(1), than cash [FA'20] &
however, the shareholder the amount of such dividend or, as the case may be, the
will be subject to CG. aggregate of the amounts of such dividend distributed
2(22)(d) Any distribution to its shareholders by a Co. on the reduction
- of its capital, to or paid or likely to be distributed or paid during FY by
the extent of accumulated profits (capitalised or not).
company to shareholder, does not exceed ₹5,000 [FA'20]
2(22)(e) Loans & Advances by Closely Held Company:
Rate 10% [FA'20] -
1.Loan & Advances by Private Co[closely held co] is treated as Deemed Dividend
to the extent of accumlated profit & company is required to pay DDT @ 30%. Time of Deduction before making any payment by any mode [FA’20] in
2. Accumalated profit means profit as per companies Act respect of any dividend or before making any
3. Substiantial Interest in case of companies shall be 10% of voting rate distribution or payment
in case of other concern it shall be 20% of profit or voting right
4.Tarulata Shyam v. CIT (SC): Section is applicable at the time when loan Special points This section shall not apply to such income credited or
is given hence even if loan is repaid during the year then also sec applies. paid to-
5.It is not applicable in case of trade advances.[Cir 19/2017]
6.Accumulated profits means all profit which is available for distribution a) the LIC of India established under the LIC Act, 1956,
or payment of dividend & u/s 2[22][c] all profits up to date of liquidation. in respect of any shares owned by it or in which it
7.In case of an amalgamated company. Accumulated profits, whether capitalized has full beneficial interest;
/not/loss as the case may be shall be increased by accumulated profits
whether capitalized/not of amalgamating company on date of amalgamation. b) the GIC of India (hereafter in this proviso referred to
Dividend Does not Include: as the Corporation) or to any of the 4 companies
a) Loan, Advances given in the ordinary course of Business. (hereafter in this proviso referred to as such company),
b) buy back of shares
c) Any Dividend which is setoff by company against loan which has been
formed by virtue of the schemes framed u/s 16(1) of
deemed as dividend u/s 2[22][e] the General Insurance Business (Nationalisation) Act,
d) share alloted to shareholder of demerged company by resulting Co.
1972, in respect of any shares owned by the Corp or
[under the scheme of demerger]
e) Any distribution made u/s 2[22][c]/2[22][d] in respect of prefrence such company or in which the Corporation or such
share company has full beneficial interest;
c) any other insurer in respect of any shares owned by
it or in which it has full beneficial interest.

IFOS
17.5 CA CS VIJAY SARDA +91 8956651954
 Conditions to be satisfied :
SEC 195 TAXATION IN CASE OF NR a) Recognized by Dept for Promotion of Industry & Internal Trade as
TDS shall be deducted @ 20% start up as per this or earlier notification on the subject.
b) Aggregate amount of paid up capital & share premium of startup
after issue/proposed issue of shares, if any, does not exceed,
SEC 115BBD DIVIDEND RECEIVED BY INDIAN 25Cr. However, in computing aggregate amount of Paid up ,
COMPANY FROM FOREIGN COMPANY share capital amount of paid up share capital, amount of paid
up share capital & share premium of 25cr w.r.t shares issued
Dividend received by Indian Company from Foreign Company where to following not be included:
Indian Company holds 26% or more equity share capital of a Foreign 1) Non-resident 2) Venture Capital Co/Fund
Company & such foreign company pays dividend, then such dividend 3) Specified Co : means a Co whose shares are frequently traded
is taxable in the hands of Indian Company ( + Surcharge if total within the meaning of SEBI(Substantial Acq of Shares &
income is > 1cr. of Indian Company + HEC @ 4%) Takeovers) Regulations,2011 & whose net worth on last date of
FY preceeding the year in which shares are issued exceeds
Note : No other expense shall be allowed against dividend, means 100 cr or turnover for FY preceeding year in which shares are
Gross Dividend is taxable in the hands of Indian Company @ 15%. issued exceeds 250cr.
It has not invested in any of following assets :
SHARE ISSUED AT PREMIUM
CONSTITUITIONAL VALIDITY i) Building or land appurtenant thereto, being a residential house,
other than that used by Startup for rent or held as Stock in ordinary
If a closely held company [Private Co.] issued to share to a resident course of business.
shareholder on premium then consideration (-) FMV = IFOS ii) Land or building or both, not being reisdential, other than that
Exception : 1) Premium received by Venture Capital Undertaking & occupied by Startup for its business or used by it for purpose of
2) Person specified by Central Govt (as of now Cat I AIF is specified) renting or held by it as Stock in the ordinary course of business
Issue of Share at Premium by Category II AIF shall be exempt [FA’19] iii) Loans & advances, other than those extended in ordinary course
of business by Startup where the lending of money is substantial part
Notification By CG - notification w.e.f 19.02.2019: of business
Startup shall be elegible for Exemption u/s 56(2)(viib)(ii) if following iv) capital contributions made to any other entities
conditions mentioned are satisfied. v) shares & securities
vi) Motor vehicle, aircraft, yacht or any other modeof transport,
Meaning of Startup: the actual cost of which exceeds 10L other than that held by Startup
A company would be considered as startup if following conditions are for purpose of plying,hiring, leasing, or as Stock in trade in the
satisfied: ordinary course of business
Period - Considered Start up upto a period of 10 yrs from date of vii) Jeweller other than that held as stock in ordinary course of business
incorporation/registration, if it is incorporated as private ltd co in viii) any other asset, whether in nature of capital asset/archaelogical
India collections, drawing, painting, sculptures, any work of art or bullion.
Turnover limit - Turnover for any of the FY(s) since incorporation/ However, it should not invest in any of the assets mentioned above
registration has not exceeded 100 cr. for more than 7yrs from end of latest FY in which shares issued at
Object & Purpose - Co is working towards innovation, development/ premium.
improvement of products or processes or services or if it is scalable
business model with a high potential of employment generation or Proviso issued by FA’19: If Co fails to comply with conditions
wealth creation. mentioned, then any consideration received as premium shall deemed
However, Pvt Ltd Co shall not be considered as startup, if it formed to be the income chargeable to tax for PY in which failure has taken
by splitting up or reconstruction of an existing business. place & shall also be deemed that Co has under- reported said income
as referred to in Sec 270A for said PY.
IFOS
CA CS VIJAY SARDA +91 8956651954 17.6
 FAMILY PENSION SEC 94[7] DIVIDEND STRIPPING TRANSACTIONS
Normal Deceased was receipent Deceased was working in If any person buys/acquires any security/units at any time within 3M
of gallantry award armed forces prior to record date & Sell/transfer within 3 M after such record date
Actual rcvd xx Or units within 9 Ms of record date & Dividend/income from such
[-] Lower of securities are exempt from tax [u/s 10[34]/[35] Then Loss arising
1/3rd of pension Exempt u/s 10[18] Exempt u/s 10[19] from transfer of such securities or units shall be ignore to the extent
15000p.a. (xx) income claimed to be exempt. Lets Asssume the security is transferred
then calculation shall be
Taxable xx
Particulars ₹
Pension received to family member of Deceased. FVC xxx
[-] COA [ST] [xxx]
DEDUCTION ALLOWED U/S 57 Loss
Less: Dividend u/s 94[7]
[xxx]
xxx
1. Expenditure for realising dividend or interest from UTI/MF only Interest exp Balance Loss can be C/f xxx
allowed & that too 20% of such dividednd / income from UTI / MF
2. Employees’ contribution towards relevant fund(s) before the due date
as per that Act [Sec. 57(ia)] SEC 94[8] BONUS STRIPPING TRANSACTIONS
3. Repair, depreciation, insurance of plant, machinery, furniture, building
[Sec. 57(ii)] If any person buys or acquires any units(not security) at any time
4. Standard deduction in case of family pension lower of 1/3rd of Pension within period of 3 months prior to record date & he is being allotted
or Rs.15000p.a. bonus unit & Sell or transfer all original units within a period of 9
5. Other deductions incured for business is allowed as deduction.Sec57(iii) months of record date while continue to own bonus shares Then Loss
6. 50% of the amount of interest on compensation or enhanced compensation arising from transfer of such units shall be ignored. Loss so ignored
Following proviso shall be inserted in sec 57 by FA'20, w.e.f. 1-4-21 : shall deemed to be cost of acq of those bonus units
Provided that no deduction shall be allowed from dividend income, or
income in respect of units of a MF specified u/s 10(23D) or income SEC 94[1] BOND WASHING TRANSACTION
in respect of units from a specified company defined in the Expl. to
sec 10(35), other than deduction on account of interest exp., & in any Where owner of any security sell or transfer those security before
PY such deduction shall not exceed 20% of dividend income, or income due date of interest and buy back or reacquire the security after the
in respect of such units, included in the total income for that year, due date then if result of transaction is that any interest become
without deduction under this section. payable in respect of those securities is receivable by transferee,
interest deemed to be income of transferor of securities.
DEDUCTION NOT ALLOWED U/S 58 Exception to above section: 1) If there has been no avoidance of Tax.
2) If the avoidance was exceptional and nit systematic and there was no
a) Any personal expenses of the assessee. avoidance of income tax by the Assessee during the 3 PY.
b) Any interest or salary payable outside India on which tax has not been
paid or deducted.
c) Any sum paid on account of Wealth-Tax
d) The provisions of section 40A shall apply mutatis-mutandis
e) Expenditure related to casual Income
f) 30% of the amount of payment made without TDS to Resident u/s 40(a)(ia).
g) Cash expense exceeding ₹10,000 - Sec 40A(3) shall apply.
IFOS
17.7 CA CS VIJAY SARDA +91 8956651954