Income from Other Sources under the Income Tax Act, 1961

Meaning and Scope

Section 56(1) states:
“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
heads specified in section 14.”
Specific Incomes Chargeable under “Income from Other Sources”
– Section 56(2)
1. Dividends [Section 56(2)(i)] Any income received as dividends
(excluding dividends from Indian companies which are taxable in hands of
shareholders after abolition of DDT in 2020) is taxable under this head.
2. Winnings from Lotteries, Crossword Puzzles, Games, etc.
[Section 56(2)(ib)] Includes income from lotteries, horse races, card
games, TV shows, gambling, or betting. Taxed at a flat rate of 30%
under Section 115BB, without any deductions for expenses.
3. Interest on Securities [Section 56(2)(id)] If not taxable under
"Profits and Gains of Business", interest on government securities,
debentures, bonds, etc., is taxed under this head.
4. Gifts and Monetary Receipts [Section 56(2)(x)] If an individual or
HUF receives any sum of money, immovable property, or movable
property without consideration or for inadequate consideration,
and the value exceeds ₹50,000, it becomes taxable (exceptions apply,
such as gifts from relatives or on marriage).
5. Forfeiture of Advance in Negotiations for Transfer of Capital
Asset [Section 56(2)(ix)] Any advance received and forfeited due to
failed transfer negotiations is taxable under this head.
6. Income from Letting out of Plant, Machinery, or Furniture
[Section 56(2)(ii)] If such letting is not part of business or profession,
income is chargeable under this head.
7. Family Pension Pension received by a legal heir after the death of a
government or private employee is taxed under this head. A standard
deduction of ₹15,000 or 1/3rd of pension, whichever is lower, is allowed.
General Incomes Taxable Under This Head
In addition to the specified incomes above, the following incomes are also
taxed under “Income from Other Sources”:
1. Interest income from savings bank, fixed deposits, recurring
deposits.
 2. Royalty income (if not part of business income).
3. Director’s sitting fees.
4. Income from sub-letting of property.
5. Income from undisclosed sources.
6. Compensation received on termination of employment (if not taxed
as salary).
Taxability of Gifts [Section 56(2)(x)] – A Closer Look
This is one of the most important and frequently applied provisions under
this head. The rules are:
When Gifts are Taxable:
1. Monetary gifts exceeding ₹50,000 (aggregate in a year).
2. Movable property received without or for inadequate
consideration where the fair market value exceeds ₹50,000.
3. Immovable property received without or for inadequate
consideration exceeding ₹50,000 in stamp duty value.
When Gifts are Not Taxable:
1. Gifts from relatives (as defined under the Act).
2. On occasion of marriage of the individual.
3. Under inheritance or will.
4. In contemplation of death of the donor.
5. From certain trusts or institutions registered under Section 12A or
12AA.
6. Received by local authority or charitable institutions.
Deductions Allowed – Section 57
From the income chargeable under this head, only specified deductions
are allowed under Section 57:
1. Commission or remuneration for realizing dividend or interest.
2. Deduction for family pension: 1/3rd of pension or ₹15,000,
whichever is less.
3. Deductions from letting out machinery or furniture: Repairs,
insurance, and depreciation.
4. Interest expense on securities: If borrowed capital is used for
investing in securities.
No general deduction under Section 37 (for business expenditure) is
allowed under this head.
Disallowance under Section 58
Certain expenses are not allowed as deductions, such as:
1. Personal expenses.
2. Interest payable outside India without TDS.
 3. Expenditure incurred to earn lottery or gambling income.
4. Salaries payable outside India without tax deduction.
Clubbing and Set-off Provisions
1. Income under this head may be clubbed in the hands of a
parent/spouse in certain cases (e.g., income of minor child).
2. Loss under this head can generally be set off against income from
the same head, but not against lottery winnings or casual
incomes.
3. Losses under “Income from Other Sources” (like interest
expenditure) can be carried forward if allowed.
Tax Rate and Computation
1. Most incomes under this head are taxed at slab rates applicable to
the assessee.
2. However, some incomes are taxed at special rates, such as:
 Winnings from lottery/games: 30% (u/s 115BB).
 Dividend income: Taxed at slab rate, but subject to TDS
under Section 194.
 Gifts: Fully taxable if exceeding limits (taxed at slab rates).
Conclusion
“Income from Other Sources” under the Income Tax Act, 1961 serves as a
comprehensive and inclusive head of income to ensure that all
taxable receipts, which are not specifically covered under other heads,
are still brought under the tax net. The head plays a critical role in
preventing tax evasion, particularly in cases of gifts, casual income,
or undisclosed wealth.
While its wide scope ensures flexibility and coverage, the clarity provided
by judicial precedents and detailed provisions in the Act ensures fairness
and transparency. With modern tax administration becoming increasingly
data-driven, incomes under this head are now more easily detected and
tracked, ensuring better compliance and equity in taxation.