Income From Other Sources - Income Notes Part - 06
The following ten incomes are always taxable under the head “Income from other sources”:
1. Dividend income;
2. Income from winnings from lotteries, crossword puzzles, races including horse races, etc.;
3. Any sum received by the assessee from his employees as contributions to any staff welfare schemes, if the same is not taxed as business income;
4. Income by way of interest on securities, if the same is not taxed as business income;
5. Income from letting out machinery, plant or furniture, if the same is not taxed as business income”;
6. Income from letting out of machinery, plant or furniture along with letting out of building and the two lettings are not separable (if the income is not taxed as business income);
7. Any sum received under a Keyman insurance policy (including bonus), if such income is not taxable as salary income or business income;
8. If any sum of money received as gift exceeds Rs. 50,000, the whole of the amount is taxable as income from other sources;
9. Income by way of interest on compensation or on enhanced compensation shall be assessed under the head “Income from other sources” in the year in which it is received. However, 50 percent of such interest is deductible and consequently, only 50 percent of such interest is taxable.
10. Where any sum of money, received as an advance or otherwise in the course of the negotiations for transfer of a capital asset, is forfeited and the negotiations do not result in transfer of such capital asset, then, such sum shall be chargeable to tax under the head “Income from other sources”. This provision is applicable for those forfeitures of advance money which are forfeited in the assessment year 2015-16 (or onwards).
Some general incomes which are chargeable to tax under the head “Income from other sources”:
1. Income from subletting;
2. Income from royalty (if it is not an income from business/ profession);
3. Director’s fee;
4. Agricultural income from land situated outside India;
5. Agricultural income from a place outside India;
6. Rent of plot of land;
7. Casual income;
8. Salaries payable to a Member of Parliament;
9. Family pension received by family members of a deceased employee;
10. Income from undisclosed sources;
11. Compensation received for use of business assets;
12. Income from undisclosed sources:
• Unexplained Cash credits (Sec. 68)
• Unexplained Investments (Sec. 69)
• Unexplained Money (Sec. 69A) ▪ Unexplained Expenditure (Sec. 69C)
• Amount borrowed/ repaid on Hundi.
Relevance of method of accounting:
Income chargeable under the head “Income from other sources” is computed in accordance with the method of accounting regularly employed by the assessee.
Deductions under the head “Income from other sources” [Sec. 57]
1. Interest on loan taken for the purpose of investment in shares or securities will also be deductible if it is actually used for the aforesaid purpose. But if dividend is exempt under section 10(34), the expenses shall not be allowed as a deduction because expenses incurred to earn the income which is already exempt under section 10 are not allowed as deduction.
2. In the case of income in the nature of family pension received by the widows or heirs of deceased employee, a deduction of a sum equal to 1/3rd of such income or Rs. 15,000, whichever is less, is allowed as deduction.
3. Any other expenditure (not being a capital expenditure or personal expenditure of the assessee) incurred wholly and exclusively for the purpose of earning such income.
4. Any expenditure is deductible if the following basic conditions are satisfied:
a. The expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning the income;
b. The expenditure must not be in the nature of capital expenditure;
c. It must not be in the nature of personal expenses of the assessee;
d. It must be laid out or expended in the relevant previous year and not in any prior or subsequent year.
Amounts not deductible while computing “Income from other sources” [Sec. 58]
1. Any personal expenses of the assessee.
2. Payment to relatives and associates if the Assessing Officer considers it excessive or unreasonable.
3. Expenses or losses in connection with income from lottery, crossword puzzles, races including horse races, card games, gambling or betting of any nature, shall not be deductible in computing the said income.
4. Expenses incurred in relation to exempted incomes are not deductible.
Miscellaneous Points
1. Dividend from UTI/ Mutual fund is exempt from tax under section 10(35).
2. Winnings from lottery or gambling nature incomes are taxable @ 30%.
3. Interest on Government securities and non-Government securities is taxable under the head “Income from other sources”. However, in case of non-Government securities (listed on non-listed), TDS rate is 10% but in case of Government securities, TDS is Nil.
4. Anything received by partners from their partnership firm is taxable under the head
“Profits and gains of business or profession” in their individual hands. For example, interest on capital, share of profit, remuneration to partners, etc.
5. Share of profit from a partnership firm is exempt from tax in the hands of partners under section 10(2A).
6. Maximum rate of interest which a firm can pay to the partners, as interest on partner’s capital contribution cannot exceed 12% p.a. under section 40(b).
7. Tax-free Government Securities:
These securities are those, the interest on which is fully exempt from tax under section 10(15). Interest on such securities is neither included in total income of the assessee, nor it is taxed.
8. Less-Tax Government Securities:
Interest on such securities shall be included in the total income of security holder. Tax shall not be deducted of source on interest of such securities.
CLUBBING OF INCOME
Transfer of income without transfer of assets [Sec. 60]
If the following conditions are satisfied, then the income from the asset would be taxable in the hands of the transferor:
1. The taxpayer owns an asset.
2. The income from the asset is transferred to any person but ownership of the assets still remains with the transferor.
3. The above transfer may be revocable or may not be revocable.
4. The above transfer may be effected at any time (maybe before the commencement of the Income-tax Act or otherwise).
Revocable transfer of assets [Sec. 61]
By virtue of section 61, if an asset is transferred under a “revocable transfer”, income from such asset is taxable in the hands of the transferor.
Following are treated as revocable transfers:
1. If the transfer contains any provision to re-transfer the asset (or income therefrom) to the transferor directly or indirectly, wholly or partly.
2. If the transferor has any right to reassume power over the asset (or income therefrom) directly or indirectly, wholly or partly.
3. If an asset is transferred under a trust and it is revocable during the lifetime of the beneficiary.
4. If an asset is transferred to a person and it is revocable during the lifetime of the transferee.
5. If an asset is transferred before April 1, 1961 and it is revocable within six years.
Note –
Income from such assets (covered under section 61) is taxable as and when the power to revoke arises. The above rule is applicable even if the power to revoke has not been exercised so far. For example, X has transferred an asset. Under the terms of transfer, on or after April 1, 1998, he has a right to utilize the income of the asset for his benefit. However, he has not exercised this right as yet. On or after April 1, 1998, income of the asset would be taxable in the hands of X, even if he has not exercised the aforesaid right.
When an individual is assessable in respect of Remuneration of Spouse [Sec. 64(1)(ii)]
This section is applicable if the following conditions are satisfied:
1. The taxpayer is an individual.
2. She/ he has a substantial interest in a concern.
3. Spouse of the taxpayer (i.e., husband/ wife of the taxpayer) is employed in the abovementioned concern without any technical or professional knowledge or experience.
If the aforesaid conditions are satisfied, then salary income of the spouse will be taxable in the hands of the taxpayer.
Notes –
1. Salary income includes commission, fees or any other form of remuneration whether in cash or in kind.
2. Substantial Interest:
An individual is deemed to have substantial interest, if he (individually or along with his relatives) beneficially holds 20% or more of equity shares in the case of a company or is entitled to 20% or more of the profits in the case of a concern other than a company, at any time during the previous year.
3. Relative:
Relative in relation to an individual means the husband, wife, brother or sister or any linear ascendant or descendant of that individual.
4. When both the husband and wife have substantial interest in a concern:
When both the husband and wife have substantial interest in a concern and both are in receipt of the remuneration from such concern without any technical and professional qualification, then such remuneration will be included in the total income of husband or wife whose total income, excluding such remuneration, is greater.
It is to be noted that if once clubbing is done in the hands of X, salary of X and Mrs. X will be included in the income of X (in the subsequent years), even if income of X is lower than that of Mrs. X in that year. In such a case, the Assessing Officer can club the income of X and Mrs. X in the hands of Mrs. X only if the Assessing Officer is satisfied that it is necessary to do so. The Assessing Officer can take such action only after giving Mrs. X an opportunity of being heard.
Note: The summary of Income Tax Notes Part - 06 Income from other Sources summarise from the content of Book of School of Open Learning. © School of Open Learning.
