Power Point Obligations and contracts Article 1313-1327
Income from other sources
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Income from Other
Sources
NAME: Ishita Srivastava
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What is Income from other sources?
Income from other sources is a category under the Income Tax in which we
can consider all the different sources of income which doesn’t fall under
other heads such as income from salary, or house property or capital gains.
This type of income falls under two categories: recurring and non-recurring.
Recurring income: Any income received at regularly at equal intervals.
This generally includes interest income from savings bank, post office
savings, fixed deposits, recurring deposits etc.
Non-recurring income: Any income received only once. This generally
includes Income from lottery, gambling, horse racing etc.
Examples of income under other sources
Incomefromsub-letting
Intereston bank deposits and loans
Incomefromroyalty
Directors fees
Ground rent
Agricultureincome received outside India
Directors commission for standing as a guarantor to bankers
Directors commissions for underwriting shares of new company
Examination remuneration received by teacher
Remuneration received by a person from a person other than his
employer
Rent of plot of land
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Insurancecommission
Mining rents and royalties
Intereston foreign governmentsecurities
Casualincome
Annuity payable under will , contract , trust, deed
Salary payable to MP
Family pension received by family member of a deceased employee
Intereston employees contribution if providentfund is unrecognized
Incomefromundisclosed sources
List of items under Income from Other Sources
1. Dividend: Dividend is chargeable at a rate of 10% if aggregate amount of
dividend during that year exceeds Rs. 10,00,000. This is applicable for
individuals/HUFs. If the dividend is received from a domestic company
and it is chargeable under dividend distribution tax, then it will be
exempted.
2. One-time income: Income from lotteries, crossword puzzles, horse
races, games, gambling or betting.
3. Interest on securities if it is not taxable under “Profits and Gains of
Business or Profession”.
4. Income from machinery, plant or furniture belonging to taxpayer and
let on hire. This is applicable if income is not chargeable to tax under the
head ‘Profits and Gains of Business or Profession’.
5. Composite rental income from letting of plant, machinery or furniture
with buildings, where such letting is inseparable. Again, this is applicable
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if this income is not taxable under the head ‘Profits and Gains of
Business or Profession’.
6. Any sum of money or property received by an individual or HUF from
any person will be taxable under income from other sources. The
exception for this is, if the amount or property is received from relatives.
(Take a look at the list of relatives as defined by ITD – Relative list)
If any amount that is received without consideration and is
more than Rs. 50,000 during the previous year, then the whole
amount will be taxable.
If an immovable property is received without consideration
and the stamp duty value exceeds Rs. 50,000, the stamp duty
value of such property will be taxable.
If immovable property is received for consideration which is
less than the stamp duty value of property by higher of
following amount the difference is taxable:
the amount of Rs. 50,000
the amount equal to 5% of consideration
If a movable property is received without consideration and
the aggregate fair market value of such properties exceeds Rs.
50,000, then the whole of aggregate fair market value of such
properties will be taxable.
If a movable property is received for consideration which is less
than the aggregate fair market value of properties by an
amount exceeding Rs. 50,000, the difference between the
aggregate fair market value and the consideration is taxable.
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7. If an employee receivesany compensation due to the termination of his
employment or modification of terms and conditions relating to the job,
then that amount will be taxable.
8. Any sum of money received as an advance or otherwise in the course of
negotiations for transfer of a capital asset shall be charged to tax under
this head, if:
a) Such sum is forfeited; and
b) The negotiations do not result in transfer of such capital asset.
EXEMPTIONS APPLICABLE FOR DIFFERENT SOURCES OF INCOME
NATURE OF INCOME DEDUCTIONS ALLOWED
Dividend or interest on securities Any reasonable amount paid as commission
or remuneration to banker or any other
person for purpose of realizing dividend or
interest on securities
Employee’s contribution towards EPF,
Superannuation Fund, ESI Fund or any other
fund setup for the welfare of such
employees
If employees’ contribution is credited to
their account in relevant fund on or before
the due date, then the complete amount is
exempted
Rental income letting of plant, machinery,
furniture or building
Rent, rates, taxes, repairs, insurance and
depreciation etc.
Family Pension 33.33% of family pension subject to
maximum of Rs. 15,000.
Any other income Any other expenditure (not being capital
expenditure) expended wholly and
exclusively for earning such income.
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How to calculate tax on income from other sources?
Tax on income fromother sources is calculated in 2 ways.
If the income is froma non-recurring source(or causalincome) such as
income fromlottery, horserace etc, then a tax of 30% is directly applicable
on the total income amount.
Ex.: If your casualincome is Rs.1 lakh, then tax of Rs. 30,000 is applicable
on the amount.
For any other type of income from other source, the total taxable amount
will be added to other taxable income/s and tax will be calculated according
to income tax slab.
Ex.: If you are getting any family pension of Rs. 50,000,then you will get
an exemption of 33.33% or 15000, whichever is the least.
33.33% of 50000= 16665 or 15000. Since15,000 is thelesser amount,
that will be the exemption amount.
So taxable income will be 50000 –15000 =35,000.
35,000 willbe added to other income and income tax slab will be applied
on total taxable income.
Income from Other Sources Tax
Understanding the head of Income from Other Sources is residuary in
nature. It includes incomes which are not taxable in other heads of income.
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Income from Other Sources is one of the heads of income chargeable to tax
under the Income tax Act. 1961. Any income that is not covered in the other
four heads of income is taxable under income from other sources, because
of this, it is known as residuary head of income. All the incomes excluded
from salary, capital gains, house property or business & profession (PGBP)
are included in IFOS, except those which are exempt under the Income Tax
Act.
Section 56- Incomes taxable only in Income from Other Sources are
1. Dividend Income;
2. Income earned from winning lotteries, crossword puzzles, races
(including horse race), gambling or betting of any kind;
3. Money or movable/immovable property received without consideration
or inadequate consideration during previous year;
4. Interest on compensation or enhanced compensation received;
5. Advance money received or money received in negotiation for transfer
of a capital asset (only if the money is forfeited and it doesn't result in
the transfer of such asset).
Incomes taxable under IFOS, only if not taxable under Profits and Gains of
Business or Profession (PGBP):
1. Any sum contributed towards provident funds, ESI, etc. by employee to
the employer, only if not deposited in the relevant fund;
2. Interest earned on Securities;
3. Income received from the letting of a plant, machinery or furniture, with
or without building.
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Incomes taxable under IFOS, only if not taxable under PGBP or Salaries:
1. Keyman Insurance Policy;
2. Salary of MP/MLA.
Income Computation and Disclosure Standards: Section 145 states that
Income from Other Sources must be computed on the regular accounting
methods followed by the assessee. It can be either cash or mercantile system
of accounting. The Central Government has notified Income Computation and
Disclosure Standards to be followed while computing the income.
Section 57- Expenditures allowed as deductions
Expenses incurred for realisation of dividend or interest income;
Deductions to the extent amount remitted within due date are
authorised in respect to contribution towards funds for the welfare of
employees;
Family Pension- deduction is allowed to the extent of 33-1/3% of
pension or Rs. 15000 whichever is less;
Deductions for current repairs, insurance and depreciation, will be
allowed for income earned by way of lease rental;
A deduction equal to 50% will be allowed for interest received on
compensation or enhanced compensation.
Any other expenses for earning income
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Section 58- Sum not allowed as deductions while computing
taxable income
Personal expenditure;
Interest or salary payable outside India without TDS deduction;
Wealth tax;
Expenditure concerning winnings from lotteries, crossword puzzles,
races, and gambling, etc.; and
Expenses specified in Section 40A (which says that Expenses or
payments not deductible in certain circumstances).
Related Cases/ Recent Cases/ Case Law related to section 40A
CIT v Green City Manufacturing Co (2013) 351 ITR 156 (All): Allahabad
High Court held that the remuneration paid to working partners within
the limits specified under Section 40(b)(v) cannot be disallowed by
invoking the provisions of Section 40A(2)(a).
Since the salary paid to non-residents for services rendered in
Netherland is not chargeable to tax in India, provisions of section
40(a)(iii) will not be applicable and accordingly disallowance under
section 40(a)(iii) cannot be made in respect of salary paid to non-
residents for the services rendered abroad; [2011] 10 131 (Delhi - ITAT)
April 2011: ITAT, Delhi: Only when claim of assessee for deduction is
under section 32 to section 38, provisions of section 40(a)(ia) can be
pressed into service to disallow such claims for deduction. Where the
assessee has nowhere claimed a payment as deduction, there is no
question of deduction of tax at source and consequently no question of
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making any disallowance by invoking the provisions of section 40(a)(ia) -
[2011] 10 - 181
May 2011: Mad.: Payment of bonus into an employees bonus trust is hit
by section 40A(9)
Section 40A(9) is an overriding section to section 43B; when no
deduction in respect of payment of bonus to workers is allowable
u/s. 40A(9) how the assessee can claim deduction of said payment
u/s. 43B(c) - [2011] 11-41 (Mad.)
May 2011: Delhi: Income-tax authorities can validly go into the
reasonableness & genuineness of an expenditure by way of
royalty/commission to overseas companies despite RBI's permission to
the same
However, once it is held that expenditure was neither excessive
nor unreasonable, the same could not be disallowed under
section 40A(2) - [2011] 11-106
Expenditure must be revenue in nature, at least partly - Section
40(a)(ii) comes into play only if a part of the expenditure is
otherwise held to be revenue expenditure under section 37.
Where the expenditure is itself capital in nature (like tax liability of
transferor-firm), it is not allowable under section 37(1) itself, and
hence the question of applying section 40(a)(ii) cannot arise - CIT
v. Plasmac Machine Mfg. Co. Ltd. [1993] 201 ITR 650 (Bom.).
‘Any’ will qualify both rate and tax - The words ‘any rates or taxes
levied’ in section 40(a)(ii) must be read as ‘any rate or any tax
levied’, and the word ‘any’ will qualify both rate and tax.
Accordingly, the taxes other than the tax under the Income-tax
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Act will also be covered by section 40(a)(ii) - Sundaram Industries
Ltd. v. CIT [1986] 159 ITR 646 (Mad.).
Interest payable under the provisions of the Act is also covered -
Payment of income-tax is not deductible as per section 40(a)(ii);
hence, interest under sections 139, Section 215 of Income-TaxAct,
1961|215]] and 217 which is to be regarded as accretion to tax,
cannot also be allowed to be deducted - Assam Forest Products
(P.) Ltd. v. CIT [1989] 180 ITR 478 (Gauhati).
Note : On the same principle, interest payable under
sections 220(2), 234A, 234B or 234C is also not deductible.
Surtax is not deductible - The surtax levied under the Surtax Act squarely
falls within the mischief of sub-clause (ii) of clause (a) of section 40 and
cannot be allowed as a deduction while computing the business income
of the assessee under the provi-sions of the Act - Smith Kline & French
(India) Ltd. v. CIT [1996] 85 LNIN 683/219 ITR 581 (SC).
Business tax paid in foreign country - Section 40(a)(ii) has no application
to business tax paid by assessee in Thailand, as it is not on income but
on turnover - CITv. K.E.C International Ltd. [2003] 127 LNIN 519 (Bom.).
Income-taxdues of predecessor-firm paid by assesseecannotbe allowed
as deduction - Section 40(a)(ii) does not make any distinction between
the income-tax paid by the assessee on its own income and the income-
tax paid by the assessee on the income of its predecessor; where
assessee-company was one of partners of the erstwhile firm and
assessee had agreed to take-over tax liabilities of erstwhile firm at time
of dissolution, income-tax dues of predecessor-firm paid by assessee
could not be allowed as deduction - Himson Textile Engg. Industries (P.)
Ltd. v. CIT [2004] 137 LNIN 432/267 ITR 612 (Guj.).
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Section 59- lays down that Section 41(1) would apply to income
from other sources also
If any allowance or deduction has been made while computing income from
other sources for any year in respect of any loss, expenditure or trading
liability but subsequently or later on due to recovery of any amount in cash
or any other manner or some benefit on account of remission or cessation
of loss, expenditure or trading liability is derived, then the same shall be
chargeable to tax under “Income from Other Sources” as applicable under
the head “Profits and Gains of Business or Profession”.