taxation of income from other sources and gift rules.
Questions and Answers
1. What is the scope of the head "Income from other sources"? Any income, profits,
or gains includible in the total income of an assessee that cannot be included under any
of the other four specific heads of income is chargeable under this head. It serves as a
residuary head of income, bringing within its scope all taxable income that falls outside
other categories.
2. Which method of accounting must be used for income under this head? Income
is computed in accordance with either the cash or mercantile system of accounting
regularly employed by the assessee.
3. Under which head is dividend income always taxable? Dividend income is always
taxable under the head "Income from other sources".
Exception (Important for Practice)
Situation Head of Income
Shares held as stock-in-trade Profits & Gains of Business or Profession (PGBP)
4. How is interest received on enhanced compensation taxed? Interest received on
compensation or enhanced compensation is deemed to be income in the year it is
received, regardless of the method of accounting followed. It is assessed under "Income
from other sources," and a standard deduction of 50% of such interest is allowed.
5. What is the tax implication for an advance forfeited due to failed negotiations
for a capital asset transfer? Any sum received as an advance or otherwise in the
course of negotiations for the transfer of a capital asset is chargeable to tax under this
head if the negotiations fail and the sum is forfeited on or after April 1, 2014.
6. When does a sum of money received without consideration become taxable as a
gift? If the aggregate value of money received without consideration by a person
exceeds ₹ 50,000 in a year, the whole of such aggregate value is chargeable to tax.
7. How is immovable property taxed if received for inadequate consideration? If
an immovable property is received for a consideration less than its stamp duty value,
and the difference is more than the higher of ₹ 50,000 or 10% of the consideration,
then that difference is taxable.
8. Is a gift received on the occasion of an individual's marriage taxable? No, any
sum of money or property received on the occasion of the marriage of the individual is
excluded from the ambit of gift taxation under Section 56(2)(x).
9. Are gifts from "relatives" taxable? No, any sum of money or value of property
received from any relative is outside the scope of taxation under Section 56(2)(x).
10. Who is considered a "relative" for the purpose of gift taxation? For an
individual, "relative" includes their spouse, siblings, siblings of the spouse, siblings of
either parent, any lineal ascendant or descendant (and their spouses), and the spouse
of any of the aforementioned persons. For a Hindu Undivided Family (HUF), any
member of that HUF is considered a relative.
11. What is the tax rate for casual income, such as winnings from lotteries?
Winnings from lotteries, crossword puzzles, races (including horse races), card games,
and other forms of gambling or betting are taxed at a flat rate of 30%. This rate is
further increased by applicable surcharges and a 4% health and education cess.
12. How are net winnings from online games taxed? Net winnings from online games
are taxed under Section 115BBJ at a flat rate of 30% plus surcharge and 4% cess.
Unlike other casual income, "online games" refers specifically to games offered on the
internet and accessible through computer resources or telecommunication devices.
13. Are any deductions or set-offs allowed against casual income? No, no
expenditure or allowance can be deducted from casual income. Additionally,
deductions under Chapter VI-A are not allowed, and losses cannot be set off against such
income.
14. What is the standard deduction for family pension income? A deduction of 33-
1/3% of the family pension or ₹ 15,000 (under the optional tax regime) or ₹ 25,000
(under the default tax regime), whichever is less, is allowable.
15. Is interest on a Post Office Savings Bank account exempt? Yes, interest on a Post
Office Savings Bank account is exempt up to ₹ 3,500 for an individual account and ₹
7,000 for a joint account.
16. Under which head is the salary received by a Member of Parliament (MP) or
Member of Legislative Assembly (MLA) taxable? Salary received by MPs or MLAs is
not chargeable under the head "Salary" but is taxable as "Income from other sources".
However, their daily and constituency allowances are exempt from tax.
17. What is the tax treatment for sums received under a Life Insurance Policy
(LIP)? Generally, LIP proceeds are exempt under Section 10(10D), but if the premium
exceeds specified limits (e.g., 10% or 15% of the sum assured, or ₹ 5,00,000 for policies
issued on/after April 1, 2023), the amount received may be taxable. If taxable, the
income is the sum received minus the total premiums paid.
18. Are educational scholarships taxable? No, the value of a scholarship granted to
meet the cost of education is exempt from tax in the hands of the recipient, regardless
of the amount or source.
19. What expenditures are specifically NOT allowed as deductions under this
head? Inadmissible deductions include personal expenses, interest payable outside
India on which tax has not been paid or deducted, and payments exceeding ₹ 10,000
made to a person in a day in cash (other than prescribed electronic modes).
20. What is deemed dividend under Section 2(22)(e)? Any payment by a closely
held company (where the public are not substantially interested) by way of a loan or
advance to a shareholder who beneficially owns 10% or more of the equity capital is
treated as a deemed dividend to the extent of the company's accumulated profits.
21. What specific items are included in the definition of "property" for gift tax
purposes? For the purposes of Section 56(2)(x), "property" refers to capital assets of
the assessee and specifically includes: immovable property (land/building), shares
and securities, jewellery, archaeological collections, drawings, paintings, sculptures,
any work of art, bullion, and virtual digital assets
22. Gifts received from an HUF are taxable in the hands of an individual if they exceed ₹
50,000 and consist of defined "property" (like cash, shares, or jewelry), because the HUF
is not considered a relative of the individual under Section 56(2)(x)