UNIT 6

Incomes Taxable under the head "Income from Other Sources" [Section
56(2)]

• Following conditions must be satisfied before an income can be taxed under the head "Income from Other
Sources":
•
(i) there must be an income;
•
(ii) such income is not exempt under the provisions of this Act;
•
• (iii) such income is not chargeable to tax under any first four heads viz.. "Income from Salary",
"Income from House Property", "Profits and Gains of Business or Profession" and "Income from Capital
Gain".
DIVIDEND INCOME
• Section 2(22) defines dividend income as any distribution entailing the
release of company’s assets, any distribution of debentures, distribution
on liquidation of company and distribution on reduction of capital.
• Income by way of dividend is taxable in the hands of shareholders under
section 56 under the head “ Income from other sources”. There is no
special treatment of dividend income from the assessment year 2021-22.
• Normal dividend
• Deemed dividend
• Interim dividend
WINNING FROM LOTTERIES, CROSSWORD
PUZZLES, HORSE RACES AND CARD GAMES ETC
• Winning from lotteries, crossword puzzles, races including horse races
etc is taxable under section 56 of income from other sources.
• It is taxable at a flat rate of 30 per cent ( plus SC and HEC) on the
gross winnings.
• Net and gross amount
INTEREST ON SECURITIES
• It is taxable under this head. Income by way of interest on securities
(debentures, bonds, government securities etc) is chargeable to tax if
it is not chargeable under business income.
• Interest on securities does not accure everyday or according to the
period of holding of investment.
• Gross interest (net plus TDS) is taxable. Net interest is grossed up in
the hands of recipient.
GIFT
• Gift tax in India was introduced in the year 1958 and was abolished in
1998. The government reintroduced it in the year 2004 under the head
"Income from other sources".
• Receiving or sending gifts can be a part of money laundering or tax
evasion, so the tax officers keep an eye on such transactions through the
details filed under the income from other sources head.
• Taxation rules on gifts exchange have been laid down under section 56
(2)(vi) of the Income Tax Act. It states that any gift received with or
without consideration in excess of Rs 50,000 in a financial year will be
added to your income from other sources and taxed according to your
slab.
1.Any individual receiving cash gifts exceeding Rs 50,000 in a single
financial year will have to add this income to the gross total income
and pay tax accordingly.
2.If the gift is received by an individual without any consideration and
the fair market value of such gift is more than Rs 50,000 then the
aggregate value will be taxable in the hands of such individual.
3.If the gift is received with consideration but for a value which is less
than the fair market value and the difference exceeds Rs 50,000, the
difference in the FMV and the consideration will be added to the
income and taxed accordingly.
 GIFTS EXEMPTED IN INDIA
• Gifts Under ₹50,000: Gifts received up to ₹50,000 during a financial year are exempt
from tax. This means that no tax is applicable if the total value of gifts received is below
this threshold.
• Property Received for Inadequate Consideration: If property is received for a price
higher than its fair market value, the difference between the stamp duty value and the
consideration paid is treated as a gift. This excess amount becomes taxable. However, it is
exempt if the difference is less than ₹50,000.
• Gifts from Relatives: As per the Income Tax Act, Gifts received from the following
relatives are generally exempt from taxes on gifts.
• Spouse of the individual.
• Brother or sister of the individual.
• Brother or sister of the spouse of the individual.
• Brother or sister of either of the parents of the individual.
• Any lineal ascendant or descendant of the individual.
• Any lineal ascendant or descendant of the spouse of the individual.
• Wedding Gifts: Gifts received by a newly married couple from their
immediate family members on the occasion of their marriage are comes
under the gift tax exemption. This includes cash, jewellery, property, stocks,
or gold.
• Gifts by Inheritance or Will: Gifts received through inheritance or a will
are exempt from gift tax under the Income Tax Act.
• Gifts from Local Authorities and Charitable Trusts: Money received
from local authorities, charitable trusts, funds, foundations, universities, or
registered charitable organisations are generally exempt from tax. This also
includes money received by meritorious students or patients under medical
care.
• Money Received in Contemplation of Death: Similar to inheritance,
money received in anticipation of a person’s death is exempt from income
tax gift.
HONORARIUM
• An honorarium is a voluntary payment that is given to a person for
services for which fees are not legally or traditionally required.
• An honorarium is a payment given to guest speakers who don’t charge
a fee for their services.
• Honoraria are often used in academic settings by universities.
• A guest speaker is allowed to return an honorarium and pay out of
pocket.
• An honorarium is considered self-employment income by the Internal
Revenue Service (IRS) and is usually taxed accordingly.
• Like other forms of income, an honorarium is taxable.
ROYALTY
• A royalty is paid to the owner of a product or patent in exchange for
its use.
• The terms of royalty payments are defined in a licensing agreement.
• Royalty agreements should benefit both the licensor and the
licensee.
• Royalties are considered ordinary income and are taxed
at the same rate as other types of ordinary
income. Ordinary income is any income that is taxable
at the marginal tax rate, and includes:
• salaries, wages, tips, bonuses, commissions, rents,
royalties, short-term capital gains, unqualified
dividends, and interest income.
INCOME FROM MACHINERY, PLANT
OR FURNITURE LET ON HIRE
• Income from machinery, plant or furniture, belonging to the assessee
and let on hire is taxable as income from other sources if the same is
not taxable under “Profit and gain from business or profession”.
• If there is letting out of machinery, plant and furniture and also letting
out of the building and the two lettings are inseparable. Then such
income is chargeable to tax under head “Income from other sources”.
• If the two lettings are separable income from building will be taxable
under the head “Income from house property” Income from plant/
machinery is taxable under income from other sources.