day 8 - income from other sources

8/8/2019 Day 8 - Income From Other Sources

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Income Tax ActIncome Tax Act -- 19611961Session 15Session 15 ± ± Income from Other Income from Other

SourcesSources



ChargeabilityChargeability ± ± Sec 56Sec 56

As per Sec 56(1), income of every kind, As per Sec 56(1), income of every kind,

which is not to be excluded from the totalwhich is not to be excluded from the total

income under this Act, shall be chargeableincome under this Act, shall be chargeableto income tax under the head µIncometo income tax under the head µIncome

from Other Sources¶ if it is not chargeablefrom Other Sources¶ if it is not chargeable

to tax under any of the first four heads.to tax under any of the first four heads.

It is therefore a residuary head of incomeIt is therefore a residuary head of income




Sec 56(2) gives certain specific items which shall beSec 56(2) gives certain specific items which shall bechargeable to Income tax under this head.chargeable to Income tax under this head.

a)a) Dividends other than dividends referred to in SecDividends other than dividends referred to in Sec115115--O.O.

b)b) Income by way of winnings from lotteries,Income by way of winnings from lotteries,crossword puzzles, races including horse race,crossword puzzles, races including horse race,card games and other games of any sort,card games and other games of any sort,gambling or betting of any form or nature.gambling or betting of any form or nature.

c)c) Any sum received by the Any sum received by the assesseeassessee from hisfrom hisemployees as contribution to any provident fund,employees as contribution to any provident fund,or any other welfare fund for the employeesor any other welfare fund for the employeesprovided it is not taxable under the head Profitsprovided it is not taxable under the head Profitsand Gains of Business or Professionand Gains of Business or Profession




d) Income by way of interest on securities providedd) Income by way of interest on securities provided

the income is not chargeable to Income tax under the income is not chargeable to Income tax under

the head Profits and Gains of Business or the head Profits and Gains of Business or

Profession.Profession.e) Income from machinery, plant or furnituree) Income from machinery, plant or furniture

belonging to thebelonging to the assesseeassessee and let on hire providedand let on hire provided

the income is not chargeable to tax under thethe income is not chargeable to tax under the

head Profits and Gains of Business or Profession.head Profits and Gains of Business or Profession.

f) Where thef) Where the assesseeassessee lets on hire, the machinery,lets on hire, the machinery,

plant or furniture belonging to him and alsoplant or furniture belonging to him and also




buildings and letting of buildings is inseparablebuildings and letting of buildings is inseparable

from the letting of the said machinery, plant or from the letting of the said machinery, plant or

furniture, the income from such letting, if it is notfurniture, the income from such letting, if it is not

chargeable to income tax under the head Profitschargeable to income tax under the head Profitsand Gains of business or profession.and Gains of business or profession.

g) Any income received under ag) Any income received under a KeymanKeyman InsuranceInsurance

Policy, including the sum allocated by way of Policy, including the sum allocated by way of

bonus on such policy, if such income is not taxablebonus on such policy, if such income is not taxableunder the head Salaries or Profits and Gains of under the head Salaries or Profits and Gains of

Business or Profession.Business or Profession.




h) Any sum of money the aggregate value of whichh) Any sum of money the aggregate value of which

exceeds Rs.50000 received from any personexceeds Rs.50000 received from any person

without consideration by an individual or HUF,without consideration by an individual or HUF,

subject to certain exceptions.subject to certain exceptions.ii) The value of any property received without) The value of any property received without

consideration or for inadequate consideration byconsideration or for inadequate consideration by

an individual or HUF from any person or persons.an individual or HUF from any person or persons.

Such properties will include immovable propertySuch properties will include immovable propertybeing land or building or both, shares andbeing land or building or both, shares and

securities,securities, jewellery jewellery, archaeological collections,, archaeological collections,




drawings, paintings, sculptures or any work of art.drawings, paintings, sculptures or any work of art.

j)Income by way of interest received on j)Income by way of interest received on

compensation or enhanced compensation referredcompensation or enhanced compensation referred

to in Sec 145A(b).to in Sec 145A(b).

( (a,b,h,i a,b,h,i & j taxable only under this head)& j taxable only under this head)

( (c,d,ec,d,e & f taxable under this head if not taxed under & f taxable under this head if not taxed under

Profits and Gains of Business/ Profession)Profits and Gains of Business/ Profession)

(g taxable under this head if not taxed under salaries(g taxable under this head if not taxed under salaries

or Profits and Gains of Business or Profession)or Profits and Gains of Business or Profession)



DividendDividend

Any amount declared, distributed or paid by Any amount declared, distributed or paid by

a domestic company by way of dividendsa domestic company by way of dividends

referred to in Sec 115referred to in Sec 115--O (whether interimO (whether interim

or otherwise) whether out of current or or otherwise) whether out of current or

accumulated profits shall not be includedaccumulated profits shall not be included

in computing the total income of ain computing the total income of a

previous year of anyprevious year of any person.Henceperson.Hencedividends are exempt in the hands of thedividends are exempt in the hands of the

shareholders (Sec 10(34)).shareholders (Sec 10(34)).



DividendDividend

Dividend from a foreign company or deemedDividend from a foreign company or deemed

dividend, mentioned under section2(22)(e) shalldividend, mentioned under section2(22)(e) shall

however, be taxable under the head µIncome fromhowever, be taxable under the head µIncome from

Other Sources¶.Other Sources¶.Deemed dividend u/s 2(22)(e)Deemed dividend u/s 2(22)(e)

Any payment to the extent of accumulated profits Any payment to the extent of accumulated profits

by a company, not being a company in whichby a company, not being a company in which

public are substantially interested, of any sum bypublic are substantially interested, of any sum byway of way of

ii. loan or advance to a shareholder who holds. loan or advance to a shareholder who holds



DividendDividend

the beneficial ownership of equity sharesthe beneficial ownership of equity sharescarrying not less than 10% of the voting power.carrying not less than 10% of the voting power.

ii. Loan or advance to any concern (HUF, firm, AOP,ii. Loan or advance to any concern (HUF, firm, AOP,BOI or a company) in which such shareholder is aBOI or a company) in which such shareholder is amember or partner holding substantial interestmember or partner holding substantial interest(20% or more beneficial interest at any time(20% or more beneficial interest at any timeduring the previous year)during the previous year)

iii. Any payment on behalf of or for the individualiii. Any payment on behalf of or for the individualbenefit of any such shareholder made to anybenefit of any such shareholder made to anyperson.person.

In pt above, any advance or loan to a shareholder or In pt above, any advance or loan to a shareholder or a concern in which the shareholder hasa concern in which the shareholder has



DividendDividend

substantial interest will not be deemed to besubstantial interest will not be deemed to be

dividend if it has been given during the course of dividend if it has been given during the course of

its business, provided lending of money is aits business, provided lending of money is a

substantial part of the business of the company.substantial part of the business of the company.Deduction of expensesDeduction of expenses

a) Collection chargesa) Collection charges ± ± paid to a banker or anypaid to a banker or any

other person for other person for realisingrealising the dividend.the dividend.b) Interest on money borrowed for purchasing theb) Interest on money borrowed for purchasing the

shares . This interest can be claimed even if noshares . This interest can be claimed even if no

income is earned by way if dividend on suchincome is earned by way if dividend on such



DividendDividend

shares.shares.

c) Any other expenditure, not being of ac) Any other expenditure, not being of a

capitalcapital nature,expendednature,expended wholly andwholly andexclusively for earning such income.exclusively for earning such income.



Winnings from Lottery etcWinnings from Lottery etc

Income by way of winnings from any lottery or Income by way of winnings from any lottery or crossword puzzle or race including horse racecrossword puzzle or race including horse raceor card game and other game of any sort or or card game and other game of any sort or

from gambling or betting of any form shall befrom gambling or betting of any form shall bechargeable as income from Other Sources andchargeable as income from Other Sources andshall be chargeable @ 30% u/s 115BB.shall be chargeable @ 30% u/s 115BB.

These winnings are subject to the following:These winnings are subject to the following:

1. No expenditure or allowance can be allowed1. No expenditure or allowance can be allowedagainst such incomeagainst such income

2. No deduction under Chapter VIA shall be2. No deduction under Chapter VIA shall beallowed.allowed.



Winnings from Lottery etcWinnings from Lottery etc ± ± SecSec

115BB115BB3.3. No benefit of carry forward and set off of No benefit of carry forward and set off of

loss/unabsorbed depreciation allowance isloss/unabsorbed depreciation allowance is

available against such income.available against such income.

4. No basic exemption limit is available.4. No basic exemption limit is available.

Card game and other game of any sort includesCard game and other game of any sort includes

any game show, an entertainmentany game show, an entertainment programmeprogrammeon television in which people compete to winon television in which people compete to win

prizes or any other similar game.prizes or any other similar game.



Income on SecuritiesIncome on Securities

Interest on securities may be taxed on receiptInterest on securities may be taxed on receipt

basis or due basis, depending upon the systembasis or due basis, depending upon the system

of accounting adopted by theof accounting adopted by the assesseeassessee..

Deduction for expensesDeduction for expenses ± ± As in the case of As in the case of

dividends, collection charges, interest on loandividends, collection charges, interest on loan

taken for investment in securities and any other taken for investment in securities and any other

expenditure (not being of capital nature)expenditure (not being of capital nature)

expended wholly for earning such income canexpended wholly for earning such income can

be deducted.be deducted.



Income from letting of Income from letting of

machinery, plant or furnituremachinery, plant or furnitureIncome from machinery, plant or furniture,Income from machinery, plant or furniture,

belonging to thebelonging to the assesseeassessee and let on hire, isand let on hire, is

chargeable to income tax under the headchargeable to income tax under the head

income from other sources, if not chargeableincome from other sources, if not chargeableunder Profits and Gains of Business or under Profits and Gains of Business or

Profession.Profession.

(If assets are given on hire as a part of the(If assets are given on hire as a part of the

assessee¶sassessee¶s business activity of as commercialbusiness activity of as commercial

assets belonging to theassets belonging to the assesseeassessee, income, income

derivedderived therefromtherefrom will be business income).will be business income).



Income from composite letting of Income from composite letting of

machinery, plant or furniture and buildingsmachinery, plant or furniture and buildings

Where theWhere the assesseeassessee lets on hire the machinery,lets on hire the machinery,

plant or furniture belonging to him and alsoplant or furniture belonging to him and also

buildings and the letting of the building isbuildings and the letting of the building is

inseparable from the letting of the saidinseparable from the letting of the saidmachinery, plant or furniture, income from suchmachinery, plant or furniture, income from such

letting,calledletting,called composite rent, if not chargeablecomposite rent, if not chargeable

under Profits and Gains of Business , will beunder Profits and Gains of Business , will be

chargeable as Income from Other Sources.chargeable as Income from Other Sources.



Letting of machinery, plant or Letting of machinery, plant or

furniture, with or without buildingfurniture, with or without building In case of lease rental on letting of In case of lease rental on letting of

machinery, plant and furniture, with or machinery, plant and furniture, with or

without building, the following shall bewithout building, the following shall be

deducteddeducted ± ± current repairs, insurancecurrent repairs, insurance

premium against risk of damage or premium against risk of damage or

destruction, depreciation based upondestruction, depreciation based upon

block of assets and any other expenditureblock of assets and any other expenditure(not being of capital nature) expended(not being of capital nature) expended

wholly for earning such income.wholly for earning such income.



Amount under a Amount under a KeymanKeyman

Insurance PolicyInsurance Policy Any sum received under a Any sum received under a keymankeyman

insurance policy including bonus isinsurance policy including bonus is

chargeable under this head when it ischargeable under this head when it is

received by any person other than thereceived by any person other than the

employer who took the policy and theemployer who took the policy and the

employee in whose name the policy wasemployee in whose name the policy was

taken.taken.



Gift of Money or Property fromGift of Money or Property from

unrelated personsunrelated personsThe following 3 kinds of gifts received by anThe following 3 kinds of gifts received by an

individual or HUF from an unrelated person shallindividual or HUF from an unrelated person shall

be chargeable u/s 56(2)(vii).be chargeable u/s 56(2)(vii).

i.i. Gift of moneyGift of money ± ± Where any sum of money isWhere any sum of money isreceived by an individual or HUF from anyreceived by an individual or HUF from any

person or persons without consideration, theperson or persons without consideration, the

aggregate value of which exceeds Rs.50000,aggregate value of which exceeds Rs.50000,

the whole of the aggregate value of such sumthe whole of the aggregate value of such sum

shall be taxable in the hands of the recipient.shall be taxable in the hands of the recipient.




unrelated personsunrelated personsii.ii. Gift of Immovable PropertyGift of Immovable Property ± ± Where anyWhere any

immovable property is received by an individualimmovable property is received by an individual

or HUF from any person without consideration,or HUF from any person without consideration,

the stamp duty value of which exceedsthe stamp duty value of which exceedsRs.50000, the stamp duty value of such propertyRs.50000, the stamp duty value of such property

shall be taxable in the hands of the recipient.shall be taxable in the hands of the recipient.

iii.iii. Gift of Property other than Immovable propertyGift of Property other than Immovable property

a. Without considerationa. Without consideration -- Where any propertyWhere any property

other than immovable property is received by another than immovable property is received by an

individual or HUF, the aggregate fair marketindividual or HUF, the aggregate fair market

value of which exceeds Rs.50000, the whole of value of which exceeds Rs.50000, the whole of




unrelated personsunrelated personsthe aggregate FMV of such property shall bethe aggregate FMV of such property shall be

taxable in the hands of the recipient.taxable in the hands of the recipient.

b. Acquired for inadequate considerationb. Acquired for inadequate consideration ± ± WhereWhere

such property is acquired for a considerationsuch property is acquired for a considerationwhich is less than the aggregate fair marketwhich is less than the aggregate fair market

value of the property by an amount exceedingvalue of the property by an amount exceeding

Rs.50000, the aggregate fair market value of Rs.50000, the aggregate fair market value of

such property as exceeds such considerationsuch property as exceeds such considerationshall be taxable in the hands of the recipient.shall be taxable in the hands of the recipient.




unrelated personsunrelated personsMeaning of PropertyMeaning of Property ± ± Property meansProperty means

i.i. Immovable property being land or building or Immovable property being land or building or

bothboth

ii.ii. Shares and securitiesShares and securities

iii.iii. JewelleryJewellery

iv.iv. Archaeological collections Archaeological collections

v.v. DrawingsDrawingsvi.vi. PaintingsPaintings

vii.vii. SculpturesSculptures




unrelated personsunrelated personsviii. Any work of artviii. Any work of art

ix. Bullionix. Bullion

x. Where a firm or a company, not being ax. Where a firm or a company, not being a

company in which the public are substantiallycompany in which the public are substantially

interested, receives in any P.Y, from anyinterested, receives in any P.Y, from any

person or persons (on or after 1/6/2010), anyperson or persons (on or after 1/6/2010), any

property, being shares of a company not beingproperty, being shares of a company not being

a company in which the public are substantiallya company in which the public are substantially

interested,interested,

a) Without consideration, the aggregate fair a) Without consideration, the aggregate fair




unrelated personsunrelated personsmarket value of such propertymarket value of such property

b) For a consideration which is less than theb) For a consideration which is less than the

aggregate fair market value of the property byaggregate fair market value of the property by

an amount exceeding Rs.50000, the aggregatean amount exceeding Rs.50000, the aggregatefair market value of such property as exceedsfair market value of such property as exceeds

such consideration.such consideration.

However the transactions undertaken for businessHowever the transactions undertaken for business

reorganisationreorganisation, amalgamation and demerger , amalgamation and demerger

shall be excluded from the application of thisshall be excluded from the application of this

clause.clause.




unrelated personsunrelated personsCircumstances when such gift shall not beCircumstances when such gift shall not be

treated as incometreated as income

Where the sum of money or any property isWhere the sum of money or any property isreceivedreceived

i)i) From any relative or From any relative or

ii)ii) On the occasion of the marriage of theOn the occasion of the marriage of the




unrelated personsunrelated personsindividual or individual or

iii)iii) Under a Will or by way of inheritance or Under a Will or by way of inheritance or

iv) In contemplation of death of the payer or iv) In contemplation of death of the payer or donor as the case may be or donor as the case may be or

v)v) From any local authority or From any local authority or

vi)vi) From any fund, foundation, university,From any fund, foundation, university,

other educational institution, hospital,other educational institution, hospital,medical institution, any trust or institutionmedical institution, any trust or institutionreferred to in Sec 10(23C) or referred to in Sec 10(23C) or




unrelated personsunrelated personsvii) From charitable institutions registeredvii) From charitable institutions registeredu/s 12AA,u/s 12AA,

the amount so received shall not bethe amount so received shall not be

chargeable to income tax.chargeable to income tax.

Definition of relative:Definition of relative:

1.1. Spouse of the individualSpouse of the individual

2.2. Brothers or sisters of the individualBrothers or sisters of the individual3.3. Brothers or sisters of the spouse of theBrothers or sisters of the spouse of the

individualindividual




unrelated personsunrelated persons4.4. Brother or sister of either of the parentsBrother or sister of either of the parentsof the individualof the individual

5.5. Any lineal ascendant or descendant of Any lineal ascendant or descendant of

the individualthe individual

6.6. Any lineal ascendant or descendant of Any lineal ascendant or descendant of the spouse of the individualthe spouse of the individual

7.7. Spouse of the person referred to inSpouse of the person referred to inclauses 2 to 6 above.clauses 2 to 6 above.



Interest on compensation or Interest on compensation or

enhanced compensationenhanced compensation Any interest received by an Any interest received by an assesseeassessee onon

compensation or enhanced compensation,compensation or enhanced compensation,

as the case may be, shall be deemed toas the case may be, shall be deemed to

be the income of the year in which it isbe the income of the year in which it is

received.received.

A deduction of a sum equal to 50% of such A deduction of a sum equal to 50% of such

income shall be allowed to theincome shall be allowed to the asesseeasesseeand no deduction shall be allowed under and no deduction shall be allowed under

any other clause of Section 57.any other clause of Section 57.



Family PensionFamily Pension

After the death of the employee, if there is any After the death of the employee, if there is any

family pension received by the legal heirs of family pension received by the legal heirs of

the deceased, it will be deemed to be incomethe deceased, it will be deemed to be income

of the legal heir and will be taxable under theof the legal heir and will be taxable under thehead Income from Other Sources.head Income from Other Sources.

On such pension, a standard deduction shall beOn such pension, a standard deduction shall be

allowed to the legal heir @ 33.33% of suchallowed to the legal heir @ 33.33% of suchpension or Rs.15000 whichever is less.pension or Rs.15000 whichever is less.



ExampleExample

Q.1Q.1 -- Mr.AshokMr.Ashok received a sum of Rs.500000 as gift duringreceived a sum of Rs.500000 as gift duringthe financial year 2007the financial year 2007--2008, the details of which are2008, the details of which areas follows:as follows:

a.a. From relatives on the occasion of birthday Rs.100000From relatives on the occasion of birthday Rs.100000

b.b. From an unregistered charitable institution inFrom an unregistered charitable institution inconnection with compensation for floods Rs.50000connection with compensation for floods Rs.50000

c.c. Rs.150000 received from friends on the occasion of Rs.150000 received from friends on the occasion of birthdaybirthday

d.d. Rs.200000 received from aRs.200000 received from a neighbour neighbour who is in deathwho is in deathbed.bed.



Inadmissible ExpensesInadmissible Expenses ± ± Sec 58Sec 58

i)i) Personal ExpensesPersonal Expenses

ii)ii) Interest and salary payable outside India, if taxInterest and salary payable outside India, if tax

has not been paid or deducted at source.has not been paid or deducted at source.

iii)iii) Income tax/Wealth tax paidIncome tax/Wealth tax paid

iv)iv) Expenses of the nature specified in Sec 40AExpenses of the nature specified in Sec 40A

(excessive or unreasonable payments to(excessive or unreasonable payments to

certain specified persons) and paymentscertain specified persons) and paymentsexceeding Rs.20000 otherwise than by way of exceeding Rs.20000 otherwise than by way of

a/c payeea/c payee chequecheque or draft.or draft.



Inadmissible ExpensesInadmissible Expenses ± ± SecSec

5858v) No deduction shall be allowed in respectv) No deduction shall be allowed in respect

of winnings from lotteries, crosswordof winnings from lotteries, crossword

puzzles, card games, races includingpuzzles, card games, races including

horse race, gambling, betting etc.horse race, gambling, betting etc.

However expenditure on the activity of However expenditure on the activity of

owning and maintaining race horsesowning and maintaining race horses

shall be allowed as a deduction whileshall be allowed as a deduction whilecomputing the income from this activity.computing the income from this activity.



Deemed IncomeDeemed Income ± ± Sec 59Sec 59

Any amount received or benefit derived in Any amount received or benefit derived in

respect of expenditure incurred or loss or respect of expenditure incurred or loss or

trading liability allowed as deduction shalltrading liability allowed as deduction shall

be deemed as income in the year in whichbe deemed as income in the year in which

the amount is received or the benefit isthe amount is received or the benefit is

accrued.accrued.



Interesting Case LawsInteresting Case Laws

1.1. Amenity charges can be charged under Amenity charges can be charged under the head Income from Other sourcesthe head Income from Other sourcesonly in cases where it is collectedonly in cases where it is collected

independent of rent from the building. Inindependent of rent from the building. Incase where the composite income iscase where the composite income isreceived towards rent and amenities, thereceived towards rent and amenities, theentire income shall be charged to taxentire income shall be charged to tax

under the head µIncome from Houseunder the head µIncome from HouseProperty¶Property¶ ± ± SC decision inSC decision in S hambhuS hambhuInvestment Investment Pvt Pvt Ltd.Ltd.



Interesting Case LawsInteresting Case Laws

2. When an2. When an assesseeassessee borrows for the purpose of borrows for the purpose of

investing in securities, interest on loan isinvesting in securities, interest on loan is

deductible from the income derived from suchdeductible from the income derived from such

investment in the computation of taxableinvestment in the computation of taxableincome. Even if there is no income in a particular income. Even if there is no income in a particular

year, theyear, the assesseeassessee can claim deduction of suchcan claim deduction of such

interest, resulting in loss, so long as the purposeinterest, resulting in loss, so long as the purpose

of such expenditure is making or earning incomeof such expenditure is making or earning income ± ± C IT C IT vsvs RajendraRajendra Prasad Moody ( SC )Prasad Moody ( SC )



Some examples of incomeSome examples of income

chargeable under this headchargeable under this head Interest on bank deposits and loansInterest on bank deposits and loans

Income from sub lettingIncome from sub letting

Director¶s feeDirector¶s fee

Agricultural income from outside India Agricultural income from outside IndiaRent of plot of landRent of plot of land

Insurance CommissionInsurance Commission

Interest onInterest on unrecognisedunrecognised provident fund received at theprovident fund received at thetime of retirement by an employeetime of retirement by an employee

Income from private tuitionIncome from private tuition

day 8 - income from other sources

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