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Introduction:

The Income Tax Act categorizes an assessee’s income into five heads, including salaries, house property, capital gains, business or profession profits, and income from other sources; this article explores the specifics of income from other sources, addressing taxability, exemptions, and deductions.

Any revenue, earnings, or gains that are included in an assessee’s total income but do not fall under another item of income are subject to charges under the heading “Income from Other Sources,” per section 56 of the I-T Act. Being a residuary head, it includes all taxable income, earnings, and gains of an assessee that do not fall under the scope of any other head

To qualify as “Income from Other Sources” under Section 56 of the Income Tax Act, specific requirements must be satisfied.

• You generate taxable income in a financial year.

• The taxable income does not fit into other categories like Salaries, Income from House Property, Profits and gains of business or profession, and Capital gains.

Incomes Falling Under the Head ‘Income from Other Sources

Casual Income: 

Casual income encompasses proceeds from lotteries, crossword puzzles, races (including horse races), card games, other games, gambling, betting, and similar activities.

Dividend Income: 

Dividend income comprises dividends received from companies, deemed dividends under section 2(22) (a)/(b)/(c)/(d)/(e), and interim dividends.

Forfeited Advances in the Context of Capital Asset Transfers:

If a sum is received in advance during negotiations for a capital asset transfer and the transfer doesn’t occur, leading to forfeiture, it is taxable under “income from other sources.”

Compensation for Employment Termination: 

Compensation or payments related to the termination or modification of employment terms are taxable under this head of income.

Interest Earnings from Saving Bank and Fixed Deposits:

Interest earned on fixed deposits, post office deposits, or accrued in a savings bank account must be declared as income from other sources.

Insurance:

Sums received under a keyman insurance policy, along with any allocated bonus, are chargeable under “Income from Other Sources” if not categorized under salaries or business profits. 

Family Pension: 

For a pension received on behalf of a deceased person, declare the income under ‘Income from Other Sources’.

Gifts:

Gifts received without consideration, exceeding an aggregate value of INR 50,000, are subject to taxable income for the assessee.

Movable Property :

• The total fair market value of any movable item that an assessee gets without payment will be taxable in the recipient’s hands if it exceeds INR 50,000 on the day of receipt.
• If an assessee receives movable property for inadequate consideration, and the difference between the fair market value and consideration exceeds INR 50,000, that difference becomes taxable.

Immovable Property: 

• Gifted immovable property is taxable for the recipient if the stamp duty value exceeds INR 50,000, with no consideration involved.
• Any difference between the stamp duty value and the consideration paid in the event that an assessee receives any immovable property as a gift for a sum of money less than the property’s stamp duty value and that difference exceeds the greater of INR 50,000 and 10% of the consideration, is taxable in the recipient’s hands. 

Income from Other Sources Deductions:

Section 57 Benefits: 

Section 57 of the IT Act allows any assessee with income from other sources to claim deductions for specified expenses when calculating their income.

• For income from mutual funds, specified companies, or dividends, interest expenditure is deductible up to a maximum of 20% of that income.

• For interest on securities, any commission or remuneration paid to another person is considered deductible.

• For family pension, a deduction of either 33-1/3% of the income or INR 15,000, whichever is less, is permitted.

• For interest on the compensation of compulsory acquisition, a deduction equal to 50% of the income is allowed, with no deduction permitted under any other clause of this section.

• Deductions can be claimed for any other expenditure, not of a capital nature, incurred solely and exclusively to earn the income.

Section 58: 

Interest taxable under the I-T Act, payable outside India without paid tax or deducted TDS, falls within this provision.

• When 30% TDS should be deducted from a payment to a resident, and such deduction is either not made or not paid by the due date of return filing under section 139(1), it comes under this provision.

• Payments made outside India are taxable under the head “Salaries” unless tax has been paid or deducted at the source.

• Personal expenses  by the assessee are not eligible for deduction or exemption.

• Expenditure involving a cash payment exceeding INR 10,000 to a person in a day is subject to certain restrictions and reporting requirements.

Conclusion:

Passive income sources like dividends, interest, and rent fall under taxable income from other sources. It’s crucial to understand this category and available deductions to ensure accurate disclosure in your tax return, including eligible expense claims under the Income Tax Act