INCOME FROM OTHER SOURCES

INCOME FROM OTHER SOURCES serves as a residual category encompassing all earnings that do not align with the other four designated heads of income. Nevertheless, specific sources of income consistently fall within the purview of ‘Income from Other Sources,’ including lottery winnings, gifts, interest on enhanced compensation, and similar instances.

Rules for Taxability of Income

Any income, not being exempt from tax and required to be included in the total income, shall be chargeable under the head “Income from Other Sources” if it is not chargeable to income tax under any of the following heads:

1. Salaries
2. Income from house property
3. Profits and gains from business or profession
4. Capital gains

However, certain incomes are always taxable under the head ‘income from other sources. The following types of receipts of income fall under the Income from Other Sources’ category –

1. Interest Income: This includes interest earned on savings accounts, fixed deposits, recurring deposits, and other financial instruments. The interest income is aggregated with the taxpayer’s total income and taxed according to the applicable slab rates.
2. Dividend Income: Dividends received from investments in shares of companies are classified as income from other sources.
3. Rental Income from Machinery, Plant, or Furniture: If you rent out machinery, plant, or furniture, the rental income is categorized under this head if it’s not your business.
4. Family Pension: Pension received by family members after the taxpayer’s demise is taxable under this category, with the taxable amount determined by pension rules and the relationship of the individual with the deceased.
5. Lottery and Gambling Winnings: Winnings from lotteries, card games, betting, or gambling are subject to taxation. The tax rate for such earnings is typically higher, and Tax Deducted at Source (TDS) is often deducted by the payer.
6. Gifts and Cash Prizes: Gifts and cash prizes exceeding a specified limit are treated as taxable income. However, certain gifts from relatives and on specific occasions may be exempted.
7. Income from Royalties: Authors, artists, and creators receiving royalties for their intellectual property fall under this category, with taxation rates varying based on the nature of the work and the agreement.
8. Club Membership Fees: Fees received from club memberships are considered as Income from Other Sources and are added to the taxpayer’s income for taxation.
9. Income from Agricultural Activities: While agricultural income is generally exempt from income tax, it becomes taxable under this head if it exceeds a specific limit.
10. Commission Income: Income earned through commissions and brokerage is classified under this head, regardless of the source, such as stockbroking or real estate.
11. Annuity Payments: Annuity payments received from insurance companies or other financial institutions are taxable under Income from Other Sources.
12. Interest on Income Tax Refunds: Interest received on income tax refunds is considered under this category and should be reported for tax purposes.
13. Scholarships and Fellowships: Scholarships and fellowships granted for academic or research purposes are included in this category and taxed accordingly.
14. Income from Freelancing and Consultancy: Professionals earning income from freelancing or providing consultancy services must account for this income under the head of Income from Other Sources if it’s not table under Profits and gains from business or profession.
15. Prizes and Awards: Prizes and awards received in cash or kind are taxable under this head, including those received in competitions or ceremonies.
16. Income from Savings Bonds: Interest income from government savings bonds and similar instruments is taxed as part of Income from Other Sources.
17. Income from Foreign Assets: Income from assets held overseas, such as foreign bank accounts, investments, or properties, must be reported under this category and taxed accordingly.
18. Advances and Gifts on Occasions: Certain gifts received during occasions, such as weddings, may be taxable if they exceed the exemption limit.
19. Income from Intellectual Property Transfer: Consideration received from transferring the rights to intellectual property, such as patents, copyrights, or trademarks, is taxable under this head.
20. Income from Lease: Lease income, such as income from leasing machinery, equipment, or land, is classified under this head for taxation.
21. Earnings from Digital Platforms: Income earned by content creators, influencers, or individuals on digital platforms is considered under this category if it’s not their business or profession.
22. Income from Crowdfunding: Income generated from crowdfunding activities is taxed as part of Income from Other Sources.
23. Honorarium: Payments received as an honorarium for services rendered are considered taxable income.
24. Interest on Loans: Interest received on loans given to individuals or businesses is included in this category for taxation purposes.

 

TAX TALK MADE EASY: From Gifts to Gambling, We’ve Got You Covered!

Q: Under which head is pension income and family pension income taxable?

A: Pension income is taxable under “Income from Salary,” while family pension income is taxable under “Income from Other Sources.”

Q: How can I save tax on Fixed Deposits?

A: Invest in fixed deposits with a 5-year lock-in period and claim a deduction up to Rs. 1,50,000 under Section 80C. Note that the interest is taxable, but you can file Forms 15G or 15H to prevent TDS deduction if your total income is below the basic exemption limit.

Q: If TDS is deducted on interest from a Tax Saver FD, should it be declared under “income from other sources”?

A: Yes, include it under “Income from Other Sources” while filing tax returns.

Q: If TDS is deducted on interest income, do I need to show it in ITR 1?

A: Yes, disclose interest income under “Income from Other Sources” in ITR 1, irrespective of TDS deduction, and later claim the tax credit using Form 16A.

Q: Can I claim deductions for expenses related to Income from Other Sources?

A: Yes, you can claim deductions for expenses directly related to such income.

Q: Is a painting received as a gift taxable?

A: If the value of the painting gift exceeds Rs.50,000, it is taxable under “Income from Other Sources.”

Q: Are gifts received on the occasion of marriage taxable?

A: No, gifts received on the occasion of marriage are completely exempt from income tax.

Q: What if the value of a gift (other than marriage) exceeds Rs.50,000?

A: The entire amount will be taxable under “Income from Other Sources.”

Q: How to file income tax returns for winnings from online betting sites?

A: Declare the winnings under “Income from Other Sources”; it will be taxable at a rate of 30%.

Q: What are casual incomes, and how are they taxed?

A: Casual incomes, such as lottery winnings, are taxed at a rate of 30%.

Q: Do I need to fill the “income from other sources” field if TDS is deducted?

A: It is recommended to show income in ITR even if TDS has been deducted.

Q: How is interest earned from a joint bank account treated for tax purposes?

A: The income is reflected in the return of the person whose PAN is registered with the bank.

Q: Where should income from home tuition be shown in an income tax return?

A: If part-time, show it under “Income from Other Sources”; if the main source, consider it as business income.

Q: What happens if “income from other sources” is not declared?

A: The Income Tax department could issue notices to taxpayers who fail to include income from other sources.

Q: What are common incomes under “income from other sources”?

A: Dividends, one-time income, interest from deposits, income from machinery, plant, or furniture, and more not taxed under other heads.

Q: Can expenses be deducted from income from other sources?

A: Yes, except for income from lottery, betting, and gambling, expenses incurred for earning income can be deducted.

 

Don’t wait for tax season to catch you off guard. Take control of your finances today!

Let’s turn those “other sources” into tax triumphs, together!

 

With confidence,

CA Mohit Loonkar

Your Tax Savvy Partner