Income from Other Sources
Income from Other Sources is the final head of income under the Income section under the Income Tax Act. As it includes all the receipts which are miscellaneous in nature and cannot be put in the other section.
Three conditions according to Section 56 under the Income Tax Act needs to be fulfilled to get shorted under Income from other sources:
- It must be treated as income
- The income must not be exempted under any other provision of the Income Tax Act
- The income should not be considered as salary, profits, and gains, from house property, business/ profession, or capital gains
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Types of income
Some of the types of income which is considered under this section are:
- Dividends: According to the residential status of the company, dividends are taxable considering income.
-Indian company: Given the condition that, if the organization has paid Dividend Distribution Tax on the receipt. In that tax is exempted from dividends. But under the Income Tax Act of Section 115BBDA, in case, individuals/HUF/firm receives dividends of more than Rs. 10 Lakhs then the amount more than Rs. 10 Lakhs is taxable at a rate of 10%.
-Foreign company: The dividend received under this section is subject to the income tax which is categorized under the Income from other sections.
- One-time: It is the income that one gets from winning lottery, game, gambling, or any other similar form of income that comes under Income from other sources.
- Compensation Interest: When a taxpayer receives compensation in a condition where acquisition of compensation is taxable under the head of income.
- Interest on Saving Bank: The income which happens to get accumulated in one saving bank account should be declared in one’s tax return under the head income from other sources. The interests that one gets from fixed and recurring deposits are deemed to be taxable but the interest which one gets from post-office and saving- bank accounts up to a certain extent are deductible. According to categorization, they are under the head “Income from another source”.
- Income deduction Under Section 80TTA: Up to Rs. 10,000 for a given financial year this amount is exempted from tax. This is applicable only for the residential individuals (who are 60 years or less than age). The deduction is allowed on interest income earned from: savings account with a bank; savings account with a cooperative society carrying on the business of banking, or savings account with a post office Senior citizens are not entitled to benefits under section 80TTA.
- Gifts: It is basically the sum of money along with movable/immovable property which is received without any consideration is also taxable.
- Tax on Fixed Deposit: The interest which one receives is added with the other income such as Salary/ Professional income and one has to pay tax as per the tax slab rates which are applicable. The TDS is deducted on the interest income which when it is earned although it may not be paid. Example: The bank will deduct TDS on interest accrued each year on an FD for 5 years. Therefore, it is advisable to pay your taxes on an annual basis instead of doing it only when the FD matures. Senior citizens, with effect from 1 April 2018, will enjoy an income tax exemption uptoRs 50,000 on the interest income they receive from fixed deposits with banks, post offices, etc under Section 80TTB.
- Avoiding TDS on Fixed Deposit: The banks are required to subtract tax when the interest from the deposits which is held in all the bank branches is more than Rs. 40,000 in a year. If the PAN details are available then 10% TDS is deducted and 20% if the bank does not have PAN details. One can refer to Form 26AS for TDS deduction. And if the total income is less than the taxable limit, one can avoid tax deductions which are on the fixed deposits by Submitting Form 15G and Form 15H. The details of these forms can be referred to the separate document file which is prepared by HA. Some of the major aspects of these forms are that firstly they have to be submitted at the start of the financial year and Indian citizens can only avail of this. In case someone has missed filing the form then they can claim a refund by filing Income Tax Return. As the form validity is only for one year which makes it is mandatory to fill and submit the form every year.
- Exempt Income: The amount which is under the PPF and EPF that one withdraws after maturity is exempted from taxation. This should also be declared exempt income from the other sources. The rules of EPF withdrawal are lengthy and cannot be explained here. For a more detailed explanation contact HA.
- Pension: If someone in the family is collecting a pension amount on the behalf of someone who is deceased. Then the income that one gets is written down under the “Income from another source” section. There is a deduction of Rs 15,000 or one-third of the family pension received whichever is lower from the Family Pension Income. This will be added to the taxpayer’s income and tax must be paid at the tax rate that is applicable.
- Tax on winning lottery/ Game Shows/ Puzzles: If someone gets money by all these stated modes of income then under the section “Income from other Sources”. This income is taxable at a flat rate of 30% after the addition of cess which will finally make up to 31.2%.
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Deductions under Income from Other Sources
Freelancers and business persons who are eligible to deduct certain expenses from their income and a taxpayer who is earning income from other sources can claim deductions for expenses like:
- Commission or remuneration for realizing dividends (if not covered under Section 115-O which is exempt) or interest on securities: Given that if any money or commission is paid for realizing a dividend, then such expenses are allowed to get deducted from the income from the dividend (which is taxed as income from other sources).
- Non-Capital Expenses like repair, depreciation in concern with plant/ machinery/ furniture/ building, or insurance premium are all deductible from the rental income which is being earned by letting out of the plant, machinery, furniture, and building. The rental income which comes from the plant and machinery is chargeable to tax and the expenses incurred with respect to such plant and machinery are all allowed to be deducted.
- On the family pension, a standard deduction is allowed. It means that the deduction which is lower than Rs. 15,000 and 1/3 of income which is available in case of income which is in respect with the nature of the family pension paid to the family members of a deceased employee.
Whereas when the interest on compensation or enhanced compensation is received a 50% of interest is deducted. And also according to Section 57 (iii), a deduction is allowed for calculating any other expense which is not considered as a capital expense or else is spent completely in making income or profit.
Some of the listed receipts which are classified as income from the other sources (given the condition that they are not chargeable as “profits and gains of business or profession”) are as follows:
- Employee’s making contributions to welfare schemes
- The interest which comes from securities like Government Bonds/ debentures
- Rental income comes from letting plant, machine, or furniture owned by the assessee and in cases where the letting out are inseparable.
- And finally, receipts which are under Keyman Insurance Policy
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