Any income which is not chargeable to tax under Section 15, 22, 28, or 45, will be chargeable to tax as Income from Other Sources (IFOS) i.e. any income not taxable under the head Income from Salary, House Property, Business/Profession or Capital Gains, is chargeable to tax as Income from Other Sources. Thus, it is a ‘Residual’ head of income.
Section 56 (2): Under Section 56 (2), the items that are mentioned as taxable under this head are as follows:-
1. Interest on Securities , provided Securities are held as Investment and not as Stock-in-trade. (If they are held as Stock-in-Trade, then interest therefrom will be chargeable to tax as income from Business or Profession and not as income from Other Sources).
2. Rent from Letting out of Plant & Machinery, Furniture .
3. Composite Rent (Combined Rent) from Letting out of Building, along with Plant &
Machinery or other assets. For e.g.: Composite rent from letting out of a Cinema Building together with chairs, projectors and other furniture will be entirely chargeable as income from Other Sources.
4. Dividend from shares of a Foreign Company or from shares of a Co-Operative Society.
[Dividend from shares of an Indian Company is exempt from tax by virtue of section 10 (34), if it was not exempt, then it would have been chargeable to tax as income from Other Sources.]
5. Any sum received as contribution by assessee from his employee towards any Staff Welfare Scheme. Initially when an employer receives any contribution from his employees towards any Staff Welfare Scheme, it becomes an income in his hand and later on when he deposits such sum in the respective fund, it is allowed as a deduction to him from his income as an allowable business expenditure, subject to the provisions of section 43B.
6. Any sum received under a ‘Keyman Insurance Policy (KIP)’ including any Bonus therein.
7. Winnings from Lotteries, Puzzles, Crosswords, Card games , any other game of any sort, Races including Horse Races or from Betting or Gambling. (Only Winnings from such activities and not business income generated out such activities. For e.g.: Income from Agency Commission on selling of Lottery Tickets will not be taxable as IFOS, but will be separately taxable as income from Business /Profession).
8. Any Gift in cash (only cash and no other asset whether moveable or immoveable) exceeding Rs. 50,000/- received by an Individual or a Hindu Undivided Family on or after 01-09-2004, without any consideration from any person. However, following receipts of cash shall not be regarded as an income:
(a.)Cash received from any person on occasion of Marriage (only Marriage and no other function like Birthday Party or Engagement),
(b.)Cash received in contemplation death of the donor, (c.)Cash received under a Will or Inheritance,
(d.)Cash received from a Relative, where the term ‘Relative’ would mean:
Θ Spouse of the Individual,
Θ Brother or Sister of the Individual,
Θ Brother or Sister of the Spouse of the Individual, Θ Spouse of Brother or Sister of the Individual,
Θ Spouse of Brother or Sister of the Spouse of the Individual, Θ Parents of the Individual,
Θ Brother or Sister of the Parents of the Individual, or their spouse, Θ Any lineal ascendant or descendant of the individual,
Θ Spouse of any lineal ascendant or descendant of the individual
For e.g.: Mr. A received Rs. 17,000/- each from his three friends Mr. X, Y and Z on 12/09/2009, then entire amount of Rs. 51,000/- (and not only the amount in excess Rs. 50,000/-) will be chargeable to tax in the hands of Mr. A, under the head Income from Other Sources.
For e.g.: Mr. A received Rs. 51,000/- from his friend Mr. X on 12/09/2006, then entire amount of Rs. 51,000/- (and not only the amount in excess Rs. 50,000/-) will be chargeable to tax in the hands of Mr. A, under the head Income from Other Sources.
Anything which is received in kind having ‘money’s worth’ i.e. Property was outside the purview of the existing provisions. Therefore Section 56 was amended w.e.f. 01/10/2009, to provide that the value of any property received without consideration or for inadequte consideration will also be included in the computation of total income of the recipient as follows:- [Such properties will include immovable property being Land or Building or both, Shares and Securities, Jewellery, Archaeological Collections, Drawings, Paintings, Sculptures or any Work of Art.]
[A.] In case of an Immovable Property: (i.) In a case where an immovable property is received without consideration and the stamp duty value of such property exceeds Rs. 50,000/-, the whole of the stamp duty value of such property shall be taxed as the income of the recipient.
(ii.) If an immovable property is received for a consideration which is less than the stamp duty value of such property and the difference between the two, exceeds Rs. 50,000/- (an inadequate consideration), then the excess of stamp duty value of such property over such consideration shall be taxed as the income of the recipient.
(If the stamp duty value of immovable property is disputed by the assessee, the Assessing Officer may refer the valuation of such property to a Valuation Officer. In such cases, the provisions of existing section 50C and sub-section (15) of section 155 of the Income Tax Act shall, as far as may be, apply for determining the value of such property.)
[B.] In case of a Movable Property: (i.) In a case where movable property is received without consideration and the aggregate fair market value (FMV) of such property
exceeds Rs. 50,00/-, the whole of the FMV of such property shall be taxed as the income of the recipient.
(ii.) If a movable property is received for a consideration which is less than the FMV of such property and the difference between the two exceeds Rs. 50,000/- (i.e. for an inadequate consideration), then the excess of the FMV of such property over such consideration shall be taxed as the income of the recipient.
It is also proposed to provide that,—
(i) the value of movable property shall be the fair market value as on the date of receipt in accordance with the method prescribed; and
(ii) in the case of an immovable property, the value of the property shall be the ‘stamp duty value’
of the property.
This amendment will take effect from 1st October, 2009 and will accordingly apply for transactions undertaken on or after such date.
NOTE
:
(1.) One shall borne in mind that all the incomes discussed above, will be taken as income from other sources only when the same is not taxable under any of the other four heads of income, except of Dividend income and Winnings from Lotteries, Puzzles, Card Games, Gambling, Betting, etc. Dividend and Winnings are always taxable as Income from Other Sources, irrespective of the business of the assessee.
(2.) All those incomes, which are chargeable to tax as income from Other Sources, are chargeable to tax either on ‘Due’ basis or on ‘Receipt’ basis, depending upon the method of accounting regularly followed by the assessee, except of
‘Dividend’ income. Dividend income is always chargeable to tax on ‘Due’ basis, irrespective of the method of accounting followed by the assessee.
OTHER INCOMES CHARGEABLE UNDER THIS HEAD:
1. Interest on Bank Fixed Deposits and Loans given.
2. Royalty income. For e.g.: Royalty received for writing Books.
3. Director’s Sitting fees (Directorship Fees).
4. Commission received by a Director from his/her Employer Company for standing as Guarantor of a loan taken by his/her Employer Company.
5. Gratuity received by a Director from the Company provided he/she is not an employee of that company. (If he/she were an employee Director, then such Gratuity would be chargeable to tax as Salary and not as income from Other Sources).
6. Rent from Letting out of a vacant Plot of Land. (Only from a vacant Plot of Land without having any Building constructed thereon, if Building is also present, then such rent would be chargeable to tax as income from House Property and not as income from Other Sources)
7. Ground Rent.
8. Compensation received on business asset.
9. Agricultural income received from a Land situated outside India.
10. Commission received by a Director from his/her Employer Company for underwriting the Shares of that Employer Company.
11. Annuity (Annual Receipt) received under a Will or a Trust deed.
12. Amount received under Family Pension. (Subject to Standard Deduction u/s 57 (2)(a), which will be lower of 1/3rd of such Family Pension or Rs.15,000/-) (‘Family Pension’ is an un-commuted monthly/periodical pension received by Family Members or Legal Heirs of a deceased Employee after his/her death) 13. Income from Subletting of a House Property. (Rent received from Letting out of a
House Property is chargeable to tax as income from House Property, whereas rent received from Subletting of a House Property is chargeable to tax as income from Other Sources) (‘Subletting’ means letting out of a property by Tenant of that property or by a person who is not an owner of that property)
14. Salary received by Members of Parliament. (Though it is called as ‘Salary’, such remuneration is not chargeable to tax as ‘Salary’ because Members of Parliament are not treated as Government Servant. They do not have any employer and due to lack of employer-employee relationship, their remuneration can not be charged to tax as ‘Salary’)
15. Income from an Undisclosed Source.
16. Income on any Investment.
17. Casual and Non-Recurring Incomes other than Capital Gains.
18. Any Income received by an assessee, who is engaged in ‘Owning & Maintaining’
Horse Race.
19. Interest on Refund of Income Tax, received from Income Tax Department.
(However, the Principal amount of Income Tax Refund is not taxable – only interest on such refund is taxable)
PERMISSIBLE DEDUCTIONS FROM INCOME FROM OTHER SOURCES:
Section 57: The following Deductions are permissible under the head Income from Other Sources (IFOS):
(1.) Section 57(1) : Commission or Remuneration paid for realizing Dividend or Interest on Securities.
(2.) Section 57(1)(a ): Deduction in respect of Employees’ Contribution towards Staff/Employees’ Welfare Scheme, provided that the contribution is credited to the fund before the due date of filing the Income Tax Return by Employer.
(3.) Section 57(2) : Repairs and Depreciation in case of letting out of the Plant and Machinery, Furniture, Building. Current repairs in respect of Building as per Section 30, Insurance Premium on the Premises, for the risk of Damage or Destruction. Repairs on the Plant and Machinery and on the Furniture along with the Insurance Premium as per Section 31, are all allowed to be deducted.
(4.) Depreciation as per Section 32 : Depreciation as per section 32 of the Act, is allowed to be deducted from Income from Other Sources, provided income generated out of that asset is chargeable to tax as Income from Other Sources.
(5.) Section 57(2)(a) : Standard Deduction in case of Family Pension allowed to be deducted at either Rs. 15,000/- or 1/3rd of Family Pension received, whichever is less, in the hands of the person who is in receipt of the amount under Family Pension.
(6.) Section 57(3) : Any other expenses for earning income from Other Sources is allowed to be claimed as deduction if, such:
(a.) Expense is incurred wholly and exclusively for earning the income.
(b.) Expense is not a Capital Expenditure.
(c.) Expense is not a Personal expenditure.
(d.) Expense is incurred in the Previous Year.
# List of incomes exempted from tax under section 10 from this head:
1. Section 10(1): Agricultural income from Agricultural Land in India.
2. Section 10(11): Interest or any Amount due from Public Provident Fund.
3. Section 10(12): Any amount due from Provident Fund A/C.
4. Section 10(13): Any amount due from an Approved Superannuation Fund.
5. Section 10(15): Any Interest on Post Office Saving A/c or from notified Securities.
6. Section 10(16): Any Educational Scholarship received.
7. Section 10(17): Allowances to MLA or MP.
8. Section 10(17A): Any Award received from Central/State Government.
9. Section 10(34): Any Dividend received from an Indian Domestic Company.
10. Section 10(35): Any income from units of UTI or from units of a Mutual Fund.
11. Section 10(10D): An amount received from Life Insurance Policy including any Bonus therein, issued by any Insurance Company in India, provided annual premium payable on such policy, does not exceed 20 % of the Sum Assured of such Policy.