Income is defined in Section 2(24) of the Income Tax Act, 1961.

Income includes:

1. Profits and gains

2. Dividend

3. Voluntary Contributions received by a trust. Voluntary contributions received by a trust are

included in the definition of income. As such contributions received by following types of trusts,
funds, associations, bodies etc. are included in the income of such bodies.
i. Contributions received by a trust created wholly or partly for charitable or religious purposes.
ii. Contributions received by a scientific research association.
iii. Contributions received by a fund or institution set up for charitable purposes and notified u/s
10(23c)(iv)(v). iv. Contribution received by any university or other educational institution; hospital
referred in section 10(23c).

4. The value of any perquisite or profit in lieu of salary taxable under section 17(2)(3).

5. Any special allowance or benefit, other than perquisite included under sub-clause (iii),
specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the
performance of the duties of an office or employment of profit.

6. Any allowance granted to the assessee either to meet his personal expenses at the place where
the duties of his office or employment of profit are ordinarily performed by him or at a place
where he ordinarily resides or to compensate him for the increased cost of living.

7. Value of any benefit or amenity, whether convertible into money or not, obtained by a
representative assessee or by any person on whose behalf such benefit is received by
representative assessee and sum paid by representative assessee in respect of any obligation
which hut for such payment would have been payable by the person on whose behalf
representative assessee has made such payments. The profits and gains of any business of
banking (including providing credit facilities) carried on by a cooperative society with its members;

8. The value of any benefits or perquisites, whether convertible into money or not, obtained from
a company either by a director or by a person, who has a substantial interest in the company, or
by a relative of a director of such person, and any sum paid by such company in respect of any
obligation but for which, such payment would have been payable by the director or other person
aforesaid.

9. Any sum chargeable to income-tax under section 28(u) and (iii) or section 41 or section 59;
10. Any sum chargeable to tax u/s 28 (iiia)
11. Any sum chargeable to tax u/s 28(iiib)
12. Any sum chargeable to tax u/s 28 (iiic) , -
13. The value of any benefit or perquisite taxable under section 28 (iv).
14. Any capital gain taxable under section 45.

15. Any sum whether received or receivable in cash or in kind under an agreement for—not
carrying out any activity in relation to any business ; or not sharing any know-how, patent,
copyright, trade-mark, license, franchise or any other business or commercial right of similar
nature or information or technique likely to assist in the manufacture or processing of goods or
provision of services.

16. The profit and gains of any business of insurance carried on by a mutual insurance company or
by a cooperative society, computed in accordance with section 44 or any surplus taken to be such
profits and gains by virtue of provisions contained in the first schedule.

17. Any winnings from lotteries, crossword puzzles, races including horse races, card games and
other games of any sort or from gambling or betting of any form or nature whatsoever.

18. Any sum received by the assessee as his employers’ contributions to any provident fund or
superannuation fund or any fund set up under the provisions of the Employee’s State Insurance
Act, 1948 or any other fund for the welfare of’ such employees.

19. Any sum received under a key man insurance policy including the sum allocated by way of
bonus on such policy.
Any sum received by an individual or HUF from any person during last assessment year in cash or
by issue of cheque or draft or by any other mode or by way of credit otherwise than by way of
consideration for goods or services but does not include

20. An aggregate amount of gift or gifts received (whether in cash or in the form of property)
exceeding Rs. 50,000 in a previous year by an individual or Hindu undivided family from
nonrelatives shall be treated as income which will be taxable in the hands of the recipient. (For
details, please refer to chapter on Other Sources)

21. Gifts received by a firm or closely held company as provided in Section 56(2)(viia).

22. Any consideration for issue of shares by a closely held company as exceeds the fair market
value of shares as provided in Section 56(2)(viib) [w.e.f. last assessment year].

Income is classified under five categories in the Indian Income Tax Act –
• Income from Salary
• Income from House Property
• Income from Business or Profession
• Income from Capital Gains
• Income from Other Sources
INCOME FROM OTHER SOURCES (Sec. 56)

Income chargeable under Income Tax Act which does not specifically fall for assessment under
any of the heads must be charged to tax as “Income from Other Sources.” Sections 56 (2)
specifically provides for the certain items of incomes as being chargeable to Tax under the head as
Dividend , Keyman Insurance Policy , winnings from lotteries, contribution to provident fund ,
money gifts, share premiums in excess of the fair market value to be treated as income, income
by way of interest received on compensation.

The entire income of winnings, without any expenditure or allowance or deductions under
Sections 80C will be taxable. However, expenses relating to the activity of owning and maintaining
race horses are allowable. Further, such income is taxable at a special rate of income tax i.e. 30%
+ surcharge + cess @ 3%.

The income chargeable under the head “Income from Other Sources” is the income after making
the deductions such as sum paid by way of commission or remuneration to a banker or any other
person for the purpose of realising such interest or a deduction of a sum equal to 50% of from
interest on compensation or enhanced compensation and any other expenditure laid out or
expended wholly.

The following incomes are covered under the head Income from other sources
Dividend: Dividends usually refer to distribution of profits by a company to its shareholders.
However, under the Income-tax Act, dividend also includes distribution on liquidation of
company, reduction of share capital and any loan or advance given by a closely held company to
its shareholder.

Income from Lottery, Crossword Puzzle and Horse Race Winning: This includes any winnings
from lotteries, crossword puzzles, races including horse races, card games and other games of any
sort or from gambling or betting of any form or nature whatsoever.

Employee’s Contribution to Welfare Fund: The contribution received by the employer from
employee regarding EPF, ESI or superannuation fund, if not deposited to the employees account
under relevant fund on or before the due date under the relevant law then the same income is
taxable under other sources if it is not taxable as business income.

Interest on Securities: The income earned in the nature of interest on securities such as
debentures, bonds, Government securities are taxable in the hands of the assessee under the
head ‘income from other sources. However, if the assessee is engaged in the business of trading
of securities then the same shall be taxable as business income.

Income from Letting out of Machinery, Plant or Furniture: Income earned from letting out of
machinery,plant or furniture belonging to assessee shall be taxable under the head “Income from
other sources”. Further, if an assessee lets out building along with these assets and letting out of
building is inseparable, then the income earned from letting out of building shall also be taxable
as income from other sources. However, if the assessee is engaged in the business of letting out of
such assets then the same shall be taxable as business income.

Sum Received under Keyman Insurance Policy: Any sum received under ‘keyman insurance
policy’ including the sum allocated by way of bonus on such policy is treated as income from
‘other sources’, provided the same is not taxable under the head “profits and gains of business or
profession” or under the head “salaries”.

Share Premium (Angel tax): If a company, not being a company in which the public are
substantially interested, receives, in any previous year, from any person being a resident, any
consideration for issue of shares that exceeds the face value of such shares, the aggregate
consideration received for such shares as exceeds the fair market value of the shares is taxable as
income from the other sources.

Income on compensation or Enhanced Compensation: Income by way of interest received on

compensation or on enhanced compensation is taxable under the head other sources in the year
of receipt.

Advance Money forfeited: Advance money received by the assessee during the course of
negotiations done for the purpose of transfer of a capital asset is taxable under the head ‘income
from other sources’ if such advance is forfeited because the negotiations did not result in transfer
of the asset.

Taxability of Gifts: Any sum of money or property, whether movable or immovable, received
without consideration or for inadequate consideration is taxable under the head ‘income from
other sources. However, gifts received from certain persons shall not be chargeable to tax such as
gifts received from relatives.

Compensation on Termination of Employment: Any compensation or other payment, due to or

received by any person, by whatever name called, in connection with the termination of his
employment or the modification of the terms and conditions relating thereto is taxable as income
from other sources.