INCOME FROM OTHER SOURCES

Section 56 – basis of charge

Under Section 56(1), a receipt shall be taxable under the head of IFOS if two conditions are
satisfied, (a)such receipt shall be a taxable income; & (b) such income does not specifically
fall under anyone of the other four heads of income. This head is thus a residuary head of
income under which income can be computed only after deciding whether the particular item
of income is otherwise assessable under any of the first four heads. Any income is taxable
under this head if following conditions are satisfied:

1. There is an Income.

2. Such income is not exempt under any provisions of the Income Tax Act.

3. Such income is not taxable under First four heads of Income.

Sec. 56(2) lays down a list of incomes, which are taxable under this head. Such list is not
exhaustive. Apart from the income stated in sec. 56(2) any other income, which is fulfilling
all the above conditions, shall be taxable under this head.

According to Section 145, income from other sources shall be chargeable on ‘accrual’ or
‘cash’ basis depending on the method of accounting regularly followed by the assessee (i.e.
either mercantile or cash system of accounting). The only exception is ‘dividend’ which is
charged as per the method specified in sec. 8.

Taxability of heads falling under Section 56(2)

1. Casual income [section 56(2) (ib): winning from lotteries, crossword puzzles etc.

Any one-time income is taxed under IFOS. This also includes 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. These incomes are subject to a 4% cess and
a flat 30% tax rate.

 'Lottery' includes winnings from prizes awarded to any person by draw of lots or by
chance or in any other manner whatsoever, under any scheme or arrangement by
whatever name called.
 'Card game and other game of any sort' includes any game show, an entertainment
programme on television or electronic mode, in which people compete to win prizes or
any other similar game.
 ‘Horse race' means a horse race upon which wagering or betting may be lawfully made.

Exemption/deduction [Sec. 58(4)]: Such income shall be fully taxable & no deduction shall
be allowed.

Exception: (remember for mcq)

1. A race horse owner is entitled to deduction in respect of expenditure incurred by him for
maintaining the horses.
2. Deduction is permissible for diversion by overriding title. For example, if assessee
forgoes a certain % of lottery income in favour of the Government or to the concern
Agency according to the terms, the amount so forgone shall be deducted.
3. Winning from a motor car rally is a return for skill and effort and cannot be treated as
casual income but taxable as normal income
4. Income of jockey from such profession is not treated as winning from horse races.
5. Winning from lottery to an agent or trader out of its unsold stock (tickets) shall be treated
as incidental to business and taxed under PGBP

2. Income from machinery, plant or furniture let on hire [section 56(2) (ii)]

Income from letting of machinery, plant or furniture on hire is charged to tax under this head,
if such income is not chargeable under PGBP.

 Any income by way of letting out an asset as a part of business activity or as commercial
asset shall be taxable under PGBP
 In case of temporary discontinuance of business due to any reason without any intention
of the assesse to part with or close the business, if the business assets are leased out for a
certain period, then such lease rent shall be taxed PGBP

3. Income from machinery, plant or furniture let on hire along with building [sec. 56(2)
(iii)]

Generally, income from letting of building is taxable under the head Income from house
property; but if such letting is inseparable from letting of machinery, plant or furniture, then
income from such letting is charged to tax under the head “Income from other sources” if not
taxed under PGBP.

Deductions allowed under sec. 56(2)(ii) & 56(2)(iii):

 Current repairs shall be allowed as deduction
 Insurance premium paid for machinery, plant, furniture or building
 Depreciation and unabsorbed depreciation
 Any other revenue expenditure expended, during the previous year, wholly and
exclusively for earning such income.

4. Family pension

Family pension is the monthly pension received by the family or heir of the deceased
employee. The pension received by the employee himself is taxable under the head 'salaries',
while the family pension is taxable under IFOS. The income by way of family pension is
eligible for a standard deduction under section 57 which is either 1/3rd of such pension or Rs.
15000 whichever is lower.

Exception: (mcq)

 Lump-sum payment made gratuitously or by way of compensation or otherwise to the

widow or other legal heirs of an employee, who dies while still in service, is non-taxable
income.
 Ex-gratia payment made to the widow or other legal heir of an employee, who dies while
still in active service would not be taxable as income provided it is paid by the Central
Government or State Government or local authority or Government or public sector
undertaking.
5. Gifts [sec. 56(2)(x)]

In order to prevent the practice of receiving sum of money or the property without
consideration or for inadequate consideration, sec 56(2)(x) brings to tax any sum of money or
the value of any property received by any person without consideration or the value of any
property received for inadequate consideration. This section applies if any person receives
from any person any benefit - cash, movable property, or immovable property - whose value
exceeds Rs. 50,000.
NOTE:

 The limit of Rs. 50,000 is per category. In other words, one may receive cash gift of Rs.
35,000 and gift in kind of Rs. 36,000 without attracting any tax.
 Property includes virtual digital asset like cryto currency

(flow chart for understanding)

Exceptions: this section shall not apply to any sum of money or property received –

1. on the occasion of the marriage of the individual (whether gift is received from relative or
outsiders).
2. under a will or by way of inheritance.
3. in contemplation of death of the payer or donor.
4. from local authority
5. by an individual, from any person, in respect of any expenditure actually incurred by him
on his medical treatment or treatment of any member of his family, for any illness related
to COVID-19 subject to prescribed conditions
6. by a member of the family of a deceased person
7. from or by any fund or foundation or university or other educational institutions or
hospital or other medical institutions or any trust or institution
8. from or by any trust or institution registered u/s 12A or 12AA or 12AB, provided it is
9. from an individual by a trust created or established solely for the benefit of relative of the
individual.
10. by way of distribution at the time of total or partial partition
11. by way of transactions in the nature of amalgamation or demerger
12. from such class of persons and subject to such conditions, as may be prescribed.
13. Any amount received or receivable from the Central Government or a State Government
or a local authority by way of compensation on account of any disaster, except the
amount received or receivable to the extent such individual or his legal heir has been
allowed a deduction under this
14. Act on account of any loss or damage caused by such disaster.
15. From any relative –

6. Share premium in excess of fair market value [sec. 52(2)(viib)]

Any excess premium received by a company from any person is considered taxable under the
head income from other sources if the following conditions are satisfied:

a) Shares (equity or preference shares) are issued by a closely held company;

b) The consideration received for the issue of shares exceeds the face value and fair market
value of shares.

7. Income by way of interest received on compensation or on enhances compensation

[sec. 56 (2)(viii)]

Interest received by an assessee on compensation or on enhanced compensation, as the case

may be, shall be deemed to be the income of the year in which it is received. It is taxable
under the head “Income from other sources” after allowing standard deduction of 50% of
such income.

8. Employee’s contribution towards staff welfare fund or scheme [sec. 56 (2)(ic)]

Any amount received or deducted by an employer from employee towards any –

 Provident Fund;
 Superannuation Fund;
 Fund set up under the provisions of Employee’s State Insurance Act, 1948; or
 Other fund set up for the welfare of such employees,

shall be treated as income of the employer under this head if not taxable PGBP.
Subsequently, when such sum is credited by the employer to the employee’s account in the
relevant fund on or before the due date prescribed under the relevant Act, then deduction of
equal amount is available.

9. Interest on securities [Sec. 56(2)(id)]

As per Section 2(28B) of the Income-tax Act, 'interest on securities' means:

(a) Interest on any security of the central government or a state government;

(b) Interest on debentures or other securities for money issued by or on behalf of a local
authority or a company or a corporation, established by a Central or State or Provincial Act.
It is taxable as per cash basis or due basis, depending on the method of accounting regularly
followed by the assess. However, where no method of accountancy is followed, then it shall
always be taxable on due basis.

10. Income from sub-letting of a house property (sub-tenancy)

The original lessee sub-leases the property to a third party. Given that the lessee is not the
property's owner, the rent paid from the sub-lessee is not regarded as "Income from House
Property". It is subject to IFOS taxation.

11. Interest amount received on the income tax refund is an income and is taxable under this
head.
12. Treatment of income in the hands of minor child: such income will be clubbed in the
hands of parent (whose income is greater)
 Exceptions: Minor child suffering from disability specified u/s 80U; income earned by
minor on account of his skill, talent or knowledge
13. Income received by spouse of a person from a concern in which the person has
substantial interest: taxed in the hands of the individual and not spouse
 Substantial interest: 20%
 Exception: No clubbing of income if the spouse possesses technical or professional
qualification & the income received is attributable to his or her qualification

FOLLOWING INCOMES ARE CHARGABLE UNDER THIS HEAD BY VIRTUE OF

SEC. 56

Income from sub-letting of a house property.

 interest on bank deposits.

 Interest on company deposits, interest on loans, etc.
 Remuneration received from a person other than his employer for evaluation of answer
scripts.
 Rent from a vacant land.
 Insurance commission.
 Income from undisclosed sources
 Income from private tuition.
 Interest on income tax refund. (Income tax refund itself is not an income.)
 Dividend received from a co-operative society.
 Directors’ sitting fee for attending Board Meetings.
 Income from activity of owning and maintaining race-horses.
 Stipend to trainee.

DIVIDEND [Sec. 2(22)]

Dividend is taxable u/s 56 whether it is paid in cash or in kind & whether such shares are held
by the assessee as investment or stock – in –trade. The deemed dividend, as defined in
Section 2(22) of the Income-tax Act, includes following:

a) Distribution entailing the release of company's assets

b) Distribution of debentures, or deposit certificates

c) Distribution of bonus shares to preference shareholders

d) Distribution on liquidation

e) Distribution by the company on reduction of its capital

f) Loan or advance to shareholders

Dividend declared, distributed, or paid on or after 01-04-2020 is taxable in the hands of the
shareholders. Dividend income is taxable either at the applicable tax rate or at the flat rate.
Such taxation of a dividend income depends on two factors, namely, the residential status of
the recipient and the nature of security.

Exceptions

a. Set-off of loan with forthcoming declaration of dividend: In case the loan granted to
member is adjusted with the forthcoming dividend, then such dividend (newly declared) shall
not be taxable in the hands of shareholder who adjusted such loan.

b. Advance or loan in the ordinary course of business: Sec. 2(22)(e) is not applicable if an
advance or loan is made by a company in the ordinary course of its business, where the
lending of money is substantial part of the business of the company.

DEDUCTIONS AVAILABLE FROM DIVIDEND INCOME [SECTION 57]

No deduction shall be allowed from the dividend income, or income in respect of units of a
Mutual Fund other than deduction on account of interest expense. Further, in any previous
year such deduction shall not exceed 20% of the dividend income, or income in respect of
such units, included in the total income for that year.

Apart from interest expenses (max. upto 20% of dividend income), no deduction shall be
allowed from dividend income.

Exemptions Allowed as Deductions

By virtue of sec. 57(i) and (iii), the following expenditure are deductible from interest
income:

a. Collection expenditure

b. Interest on loan

c. Any other expenditure

However, any expenses covered u/s 58 shall not be allowed

SPECIFIC DISALLOWANCE [SEC. 58]

Following expenditures shall not be deducted from any income under this head:

1. Any personal expenses of the assessee.

2. Any interest which is payable outside India on which tax has not been deducted at source.

3. Any salary payable outside India on which tax has not been deducted at source.

4. 30% of any payment made to a resident on which TDS provision is applicable without
deducting TDS

5. Any amount paid as Wealth tax or Income tax. Interest paid on amounts borrowed for
meeting tax liability is not deductible.

6. Any amount specified u/s 40A like -

 payment to relative in excess of requirement; or

₹payment in excess of ₹10,000 otherwise than an account payee cheque/draft/specified

electronic modes

[Link] deduction in respect of any expenditure shall be allowed in computing the income by
way of any winnings from lotteries, crossword puzzles, races including horse races, card
games and other games of any sort or form, gambling or betting of any form or nature, etc.
taxable under the head “Income from other sources”.

DEEMED PROFITS [SEC. 59]

Sec. 59 provides that where -

a. An allowance or deduction has been allowed for any year in respect of loss, expenditure or
trading liability incurred by the assessee; and

b. Subsequently, any amount is obtained, as revocation of such loss, expenditure or remission

of liability, whether in cash or in any other manner, during any previous year,

- then such amount received or amount remitted shall be charged to tax.

 ADVANCE PAYMENT OF TAX [SECTION 207-219]

According to Section 207, advance tax shall be payable in advance during any financial year,
in accordance with the provisions of sections 208 to 219. Advance tax is calculated in respect
of an assessee’s current income i.e. the total income of the assessee which would be
chargeable to tax for the assessment year immediately following that financial year.

In case of senior citizens who have passive source of income like interest, rent etc., the
requirement of payment of advance tax caused genuine compliance hardship. Therefore, in
order to reduce the compliance burden on such senior citizens, exemption from payment of
advance tax has been provided. Thus, this provision is not applicable to an individual resident
in India who:

1. does not have any income chargeable under PGBP and

2. is of the age of sixty years or more at any time during the previous year.

Such senior citizens are allowed to discharge their tax liability (other than TDS) by payment
of self-assessment tax.

The obligation to pay advance tax under Section 208 arises when during a financial, such tax
payable by the assesse, as computed in accordance with the provisions of this Chapter, is ten
thousand rupees or more.

Computation

 An assessee must estimate their current income and pay advance tax accordingly. No
statement or estimate needs to be submitted to the Assessing Officer unless served with a
notice.
 Advance tax is calculated based on the higher of the total income assessed in the latest
previous year or income returned in subsequent years. The notice can be issued anytime
during the financial year but no later than the last day of February.
 the Assessing Officer can issue a notice under Section 210(3) requiring the payment of
advance tax.
 If the assessee estimates a lower advance tax liability than the Assessing Officer's
calculation, they can pay as per their estimate.
 If the assessee's estimate is higher than the Assessing Officer’s, the higher amount must
be paid.
 Advance tax payable is reduced by the amount of tax deductible at source (TDS).
 The amount of advance tax payable by assessee in a financial year is subject to Section
209(2), as per which the net agricultural income has to be considered for the purpose of
computing advance tax.

Instalment of advance tax and due dates

1. Common advance tax payment schedule for both corporates and non-corporates (other
than those under section 44AD(1) or 44ADA(1)

2. Advance tax payment by assess computing profits on presumptive basis under section
44AD(1) or 44ADA(1)

An eligible assessee, opting for:

 computation of profits or gains of business on presumptive basis in respect of eligible

business referred to in section 44AD(1) or
 for computation of profits or gains of profession on presumptive basis in respect of
eligible profession referred to in section 44ADA(1),

shall be required to pay advance tax of the whole amount in one instalment on or before 15th
March of the financial year.
Where advance tax is payable by virtue of notice issued by Assessing officer, the whole or
part of tax specified shall be payable on or before each of such due dates as mentioned in
notice.

Credit for advance tax [section 219]: any sum, other than interest or penalty, paid by or
recovered from an assesse as advance tax, is treated as payment of tax in respect of income of
previous year and the credit shall be given in regular assessment.

INTEREST UNDER SECTION 234B AND 234C

Section 234B: interest for defaults in the payment of the advance taxes. The taxpayer is liable
to pay a simple interest at 1% per month.

Interest u/s 234B is levied in two cases –

1) If the taxpayer has failed to pay advance tax, which he is liable to pay if his estimated tax
liability for the year is ₹10,000 or more, or

2) If the advance tax paid by the taxpayer is less than 90% of the assessed tax, which is the
amount of tax as calculated

Section 234C: interest for deferment of advance tax. The taxpayer is liable to pay a simple
interest at 1% per month or part of a month for short payment/non-payment of individual’s
instalments of advance tax.

Interest under section 234C is levied in case of deferment of different instalments of advance
tax in the following cases:

1. For taxpayers other than those who have opted for a presumptive taxation scheme under
section 44AD or section 44ADA

2. For taxpayers who have opted for a presumptive taxation scheme under section 44AD or
section 44ADA, interest shall be levied if the advance tax paid on or before the 15th day
of March is less than 100% of the tax due on returned income.
 Deductions under the Income Tax Act, 1961

Deductions under the Income Tax Act are specific provisions that allow taxpayers to reduce their
taxable income by claiming certain expenses, investments, or contributions. These deductions are
designed to incentivize savings, investments, and expenditures in key areas such as health, education,
and housing. By claiming these deductions, taxpayers can lower their gross total income, which, in
turn, reduces the amount of tax payable.

These deductions are subtracted from gross total income and some of them have a specific monetary
limit while others may be a percent-based limit. Deductions lower the overall tax liability of the
taxpayer. For instance, if a taxpayer's total income is ₹10,00,000 and they claim deductions
amounting to ₹1,50,000 under Section 80C, their taxable income will reduce to ₹8,50,000, thereby
reducing their tax burden.

Key Categories of Deductions:

Deductions for Savings and Investments : These deductions are aimed at encouraging long-term
savings and investments.

1. Section 80C:

Deductions for contributions to Life Insurance Premiums, Public Provident Fund, National Savings
Certificates, Unit Linked Insurance Plan, Home Loan Principal Repayment, Tuition Fees, Sukanya
Samriddhi Account, National Housing Bank Bonds, Post Office Time Deposit, 5-Year Fixed
Deposits, Senior citizens saving scheme, Equity Linked Savings Scheme

A life insurance premium policy can cover the individual, their spouse and children. If the policy is
issued on or before March 31, 2012, Premium up to 20% of the sum, assured is deductible. However,
if issued after that date, 10% is deductible. If a policy should not be surrendered within 2 years. If
violated the deduction of previous years will be taxable income in the year of violation.

Tuition fees only include fees related to school or college excluding any development fees or
donations.

The cumulative limit for deductions under Section 80C, 80CCC and 80CCD is ₹1,50,000. Further, a
deduction may only be claimed if the expense has been paid.
2. Section 80CCC: This section provides for a deduction for contributions made towards certain
pension funds. This section is aimed at encouraging individuals to invest in pension schemes to
secure themselves financial security post-retirement. However, any amount withdrawn from the
fund is taxable.

3. Section 80CCD: This section provides deductions for contributions made to the New Pension
System (NPS) or the Atal Pension Yojana. It allows a deduction of 10% of salary or the amount
contributed for salaried individuals and 20% of gross total income for self-employed people.
However, on opting out of the scheme only 40% of the total amount is taxable.

Deductions for Health and Medical Expenses

These deductions are aimed at helping taxpayers reduce their tax liability on health-related
expenditures.

1. Section 80D: This section provides for Deduction for medical insurance premiums for self,
spouse, children, and parents. The primary objective is to encourage individuals to secure
themselves and their family members by taking health insurance policies. However, the policy
must be taken from an insurer approved by IRDA. Amount deductible is:

For individuals

 Premium for self, spouse, and dependent children: Up to ₹25,000.

 Premium for parents (below 60 years): Up to ₹25,000.
 Total amount deductible: 50,000

For senior citizens

 Premium for self, spouse, and dependent children: Up to ₹50,000 (if the taxpayer or spouse is
a senior citizen).
 Premium for senior citizen parents: Up to ₹50,000.
 Total Deduction: ₹1,00,000.

Further, if senior citizen is not insured and expenditure is incurred for medical treatment, amount
up to 50,000 is deductible. Further, a deduction up to 5,000 is there for preventative health
checkups.

2. Section 80DD: The deduction is allowed for expenses incurred for the maintenance, treatment,
or rehabilitation of a dependent who has a disability. A dependent can be an individual’s spouse,
his brother or sister, parents or children.
 For dependents with a disability of at least 40% but less than 80% disability, A fixed deduction
of ₹75,000 is allowed. For dependents with more than 80% 1,25,000 is allowed. This deduction is
a fixed amount and does not fluctuate with the amount actually spent on treatment. A medical
certificate must be obtained to qualify.

3. Section 80DDB: Deduction for medical treatment of specified diseases for the taxpayer or
dependents. Deduction can be claimed by the individual for themselves or their dependent family
members. This applies to diseases under Section 11DD. A certificate from a specialist doctor must
be obtained to qualify.
 Deduction for person below 60 years: 40,000
 Deduction for person above 60 years: 1,00,000

Deductions for Education:

Section 80E: Deduction for interest paid on loans taken for higher education for self, spouse, or
children. Here the loan must be taken from a financial institution or an approved charitable institution.
Deduction is only applicable for interest payment for a maximum of 8 years or until the interest is
paid off, whichever earlier. There is no cap on the interest payable.

Deduction for Interest on Loan for Purchase of Electric Vehicles

Section 80EEB provides a tax deduction for interest paid on loans taken for the purchase of electric
vehicles. Deduction allowed up to 1,50,000. The loan must be sanctioned between April 1, 2019, and
March 31, 2023.

Deductions for Housing

1. Section 80EE: Deduction for interest on home loan for first-time homebuyers meaning that an
individual should not own any other residential property. The loan must have been sanctioned
between April 1, 2016, and March 31, 2017. The deduction is allowed up to 50,000 per year over
and over the 2,00,000 limits under Section 24(b). The loan amount should not exceed ₹35 lakh,
and the property’s value should not exceed ₹50 lakh.

2. Section 80EEA: Deduction for interest on home loans for affordable housing for first home
buyers. the loan must be sanctioned between April 1, 2019, and March 31, 2022. The stamp duty
value of the residential house property should not exceed 45 lakhs. Deduction allowed is 1,50,000
per year.

Deductions for Interest Income

1. Section 80TTA: Deduction for interest earned on savings accounts. The deduction is available
only for interest earned on savings accounts and not on fixed deposits or recurring deposits. The
maximum deduction allowed is 10,000 per financial year. This applies to Interest earned on
savings accounts with banks, post offices, or cooperative societies.

2. Section 80TTB: Deduction for interest income for senior citizens is more than that for individuals
as interest is their only major source of income. This section includes interest from savings
account, fixed deposit and recurring deposits. The maximum deduction allowed is 50,000 per
year.

Deductions for Charitable Contributions: These deductions promote donations to charitable

institutions and political contributions.

 Section 80G: Deduction for donations to specified charitable institutions. There are upper
limits depending on the type of institution.

 Section 80GGB: Deduction for contributions made by companies to political parties. The
party must be registered under section 29A of the Representation of peoples act. There is no
upper limit for this deduction.

 Section 80GGC: Deduction for contributions made by individuals and non-corporate entities
to political parties. Here also there is no upper limit.

Deductions for Royalties and Patents: These deductions promote creative and innovative activities.

 Section 80QQB: Deduction for royalty income earned by authors. Maximum deduction is
3,00,000 per year.

 Section 80RRB: Deduction for royalty income earned from patents registered under the
Patents Act, 1970. Maximum deduction allowed is 3,00,000.

Conclusion: Deductions under the Income Tax Act are provisions that help taxpayers reduce their
taxable income by allowing them to claim specific expenses, investments, and contributions. These
deductions not only reduce the tax burden but also encourage taxpayers to invest in areas like health,
education, housing, and social welfare.