Chapter 10 Income from Other sources

Chapter 10

Income under the head Other sources

Charging Section (Section 56)

i. “Income from other sources” is the last and residual head of income and, hence, income chargeable
under the Income-tax Act, which does not specifically fall for assessment under any other head,
must be charged to tax as “income from other sources”.
ii. Therefore, an income that is not income from "Salaries", "House property", "Profits and gains of
business or profession" or "Capital gains", is to be computed and brought to charge under the head
“Income from Other Sources”. In addition to the taxation of income not covered by the other heads,
Section 56(2) specifically provides certain items of income as being chargeable to tax under the
head in every case.

Income chargeable under the head Other sources

There are certain incomes that are always taxed under this head. These incomes are as follows:

1. Dividends [Section 56(2)(i)]

As per section 56(2)(i), dividends are always taxed under this head. However, dividends from
domestic companies other than those covered by section 2(22)(e) are exempt upto ₹ 5,000/-.
2. Income by way of interest received on compensation or on enhanced compensation
Income by way of interest received on compensation or on enhanced compensation shall be
chargeable to tax under the head “Income from other sources”. 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.
3. Casual income [Section 56(2) (ib)]
i. Winnings from lotteries, crossword puzzles, races including horse races, card games and
other games of any sort (Including Online games), gambling or betting of any form
whatsoever.
ii. Such income is taxable under this head even if the assessee claims to carry on any trade or
adventure in these activities as part of his business.
iii. The entire income of winnings will be taxable without any deductions under Sections 80C
to 80U.

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iv. Expenses relating to the activity of owning and maintaining racehorses are allowable.
v. Rate of income-tax on such income is 30% + surcharge + cess @ 4% [Section115BB].
4. Winnings from lotteries [Section 56(2) (ib)]
vi. Winnings from lotteries, crossword puzzles, races including horse races, card games and
other games of any sort (Including Online games), gambling or betting of any form
whatsoever.
vii. Such income is taxable under this head even if the assessee claims to carry on any trade or
adventure in these activities as part of his business.
viii. The entire income of winnings will be taxable without any deductions under Sections 80C
to 80U.
ix. Expenses relating to the activity of owning and maintaining racehorses are allowable.
x. Rate of income-tax on such income is 30% + surcharge + cess @ 3% [Section115BB].

5. Gifts [Section 56(2) (x)]

Gifts received by an individual or HUF (which are chargeable to tax) are also taxed under this head.
S.no Gift Conditions Amount taxable in O/S
A Any sum of money Without consideration, the aggregate value of The whole of the aggregate value
which exceeds Rs 50,000/- of the sum.
B Any immovable i. Without consideration The Stamp Duty Value of such
property Stamp Value of asset > Rs 50,000. property.
ii. With consideration The Stamp Duty Value of such
Stamp Value of asset > Consideration (The property as exceeds the
difference between SV and Consideration is consideration received.
more than higher of the two: Rs 50,000 or
10% of the Consideration)
C Any property, other i. Without consideration Aggregate fair market value of
than immovable Aggregate fair market value > Rs 50,000. such property
property. ii. With consideration The Aggregate fair market value
Market Value of asset > Consideration of such property as exceeds the
(The difference between SV and consideration received.
Consideration is more than Rs 50,000)

Cases where Section 56(2) (x) does not apply:

Section Section 56(2) (x) does not apply to any sum of money or any property received:

i. From any relative

ii. On the occasion of the marriage of the individual.

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iii. Under will or inheritance.

iv. In contemplation of the death of the payer or donor, as the case may be.
v. From any Local Authority
vi. From any fund or foundation or university or other educational institution or hospital or other
medical institution or any trust referred to in section 10(23C).
vii. by an individual, from any person, in respect of any expenditure actually incurred by him on his
medical treatment or treatment of any member of his family, for any illness related to COVID-19
subject to conditions notified by the Central Government.

Meaning of relative
In the case of an individual –
i. spouse of the individual;
ii. brother or sister of the individual;
iii. brother or sister of the spouse of the individual;
iv. brother or sister of either of the parents of the individual;
v. any lineal ascendant or descendant of the individual;
vi. any lineal ascendant or descendant of the spouse of the individual;
vii. spouse of any of the persons referred to above.
(b) In the case of Hindu Undivided Family, any member thereof.

In addition to the above, the following incomes are charged to tax under this head, if not taxed under
the head “Profits and gains of business or profession”:

1. Any contribution to a fund for the welfare of employees received by the assessee from his
employees in his capacity as an employer. But if the employer deposits such amount on or before
the due date of deposit applicable for such contribution, he will be allowed a deduction on account
of the same. [Section 56(2)(ic)].
2. Income by way of interest on securities. [Section 56(2)(id)]
a. Interest on a savings account with the Post Office is exempt up to ₹ 3,500 u/s 10(15)(i).
b. Interest on Debentures issued by a widely held company received/receivable by a resident
individual of an aggregate of up to ₹ 2,500 is exempt.
3. Income from letting out or hiring of plant, machinery or furniture. [Section 56(2)(ii)].
4. Income from letting out of plant, machinery or furniture along with building; both the lettings are
inseparable. [Section 56(2)(iii)].
5. Any sum received under a Keyman Insurance Policy including bonus. [Section 56(2)(iv)].

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Other incomes which are also chargeable

i. Any fees or commission received by an employee from a person other than his employer.
ii. Any annuity received under a Will. It does not include an annuity received by an employee from
his employer.
iii. All interest other than interest on securities, e.g. interest on bank deposits, interest on loan, etc.
iv. Income of a tenant from sub-letting the whole or a part of the house property.
v. Remuneration received by a teacher or a lawyer for doing examination work.
vi. Income of Royalty.
vii. Director’s fees.
viii. Rent of land not appurtenant to any building.
ix. Agricultural Income from land situated outside India.
x. Income from markets, ferries and fisheries, etc.

DEDUCTIONS ALLOWABLE IN COMPUTING INCOME FROM OTHER

SOURCES [SECTION 57]
Following deductions are available while calculating the income chargeable under the head “Income from
other sources”:

i. From interest on securities [Section 57(i) and (iii)]

Any reasonable sum paid by way of commission or remuneration to a banker or any other person
for the purpose of realizing such interest on behalf of the assessee shall be allowed as deduction.
Interest on money borrowed for investment in securities can also be claimed as a deduction.
ii. From the contributions received by employer from employees towards P.F./
Superannuation/other funds: [Section 57(ia)]
Any sum received by an employer from employees as contribution towards any welfare fund of
such employees is first included as income of the employee, and if the employer credits such sum
to the employee’s account under the relevant fund on or before the due date (of such fund), then
such amount (i.e., employee’s contribution) is deductible from the income of the employer.
iii. From income derived from letting [Section 57(ii)]
Where buildings are let out along with machinery, plant or furniture on hire and the rental income
of building is inseparable from the rental income of such machinery, plant or furniture and the
income from such letting is not chargeable to Income-tax under the head “Profits and Gains of
Business or profession”, the following expenses incurred in respect of those assets:
a. Current (not capital) repairs of buildings.
b. Insurance premium against risk of damage or destruction of the premises.
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c. Repairs and insurance of machinery, plant or furniture.

d. Depreciation.

Where the expenses referred to at (a) to (d) hereinabove are incurred on property used partly
for the business of the assessee, a proportionate deduction shall be allowed.

iv. From income in the nature of family pension [Section 57(iia)]

In case of family pension, i.e., where a regular monthly amount is payable by an employer to a
person belonging to the family of an employee in the event of his death, a sum equal to 33-1/3%
of the income or Rs. 15,000, whichever is less, is allowable as a deduction.
v. From interest on compensation or enhanced compensation [Section 56(2)(viii)]
A deduction of a sum equal to 50% of such income shall be allowed as deduction. No other
deduction shall be allowed under any other clause of this section.
vi. Other deductions [Section 57(iii)] Any other expenditure (not being in the nature of capital
expenditure) laid out or expended wholly and exclusively for the purpose of making or earning
such income during the relevant previous year.

Conditions to be satisfied for claiming deductions

Deductions under this clause will be allowed only if the following conditions are satisfied:

a. The expenditure is laid out wholly and exclusively for the purpose of earning such income.
If the purpose of earning income is coupled with some other extraneous purpose, it will not
be possible to say that the deduction under Section 57 (iii) is earned by the assessee.
b. It is not in the nature of capital expenditure.
c. It is not a personal expenditure.
d. It is incurred in the accounting year itself and not in any prior or subsequent year.

Note that this section does not restrict deduction of expenditure to income made or earned. Interest on
moneys borrowed for investment in shares which had not yielded any income was admissible as a
deduction under the section. [C.I.T. v. Gopal (1978) 111 ITR 86]. In computing the income by way of
dividends of a foreign company, no deduction will be allowed under Section 57.

AMOUNTS NOT DEDUCTIBLE [SECTION 58]

Under section 58, following expenditures are not deductible while computing income chargeable to tax
under the head “Income from other sources”

i. Any personal expenses of the assessee [Section 58(1)(a)(i)].

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ii. Any interest chargeable under the Act which is payable outside India on which tax has not been
paid or deducted at source [Section 58(1)(a)(ii)].
iii. Any amount paid which is taxable under the head “Salaries” and payable outside India on which
tax has not been paid or deducted at source [Section 58(1)(a)(iii)].
iv. Sum paid on account of wealth-tax is not deductible under section 58(1A).
v. Amount specified under section 40A is not deductible [Section 58(2)].

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