Income from other sources- All income other than income earned from salary, house property, business and profession or capital gains etc. is covered under ‘Income from other sources’. Today in this article, we will explain you to understand income from other sources. If you want to understand the residual component of your income and what will happen if you ignore it, then this guide is for you.
Before moving ahead, let us know what all are the categories of income and what is “Income from other sources”. So let us begin our journey.
What are the Heads of Income under Income tax?
The Income Tax Department of India classifies your income into five categories for streamlining the process of income tax reporting. They are Income from :
- House Property
- Capital Gains/Loss
- Business and Profession
- Income from Other Sources
What is Income from Other Source?
Income from other sources includes and means all those residual income that cannot be placed in any other heads of income.
‘Income from Other Sources’ can be defined as an income that is not included in any of the above-listed categories. However, there are certain other incomes that are always taxed under Income from other sources.
These generally include interest income from savings bank accounts, post office savings accounts, fixed deposits, recurring deposits, family pension etc.
What Income Tax Act says about “Income from other sources”?
According to the Income Tax act, income of every kind which should not be excluded from the total income shall be chargeable to income tax under the head ‘Income from other sources’, if it cannot be chargeable to income tax under any of the other heads of income. As a result, income from other sources is a residuary head of income i.e. income which cannot be chargeable under any other head is chargeable to tax under this head. All income other than income from salary, house property, business and profession or capital gains etc. is covered under ‘Income from other sources’.
What are the items which are generally classified under “Income from other sources”?
The following incomes are chargeable to tax:-
- Dividend received from an Indian Company has been made exempt in the hands of the receiver. Accordingly, dividend received from a foreign company or any cooperative bank received from a foreign company will be taxable as income from other sources.
- Any pension received by the legal heirs or representatives of an employee.
- Any winnings for an amount above Rs. 10,000 from lotteries, crosswords, puzzles, races including horse races, card games or other games of any sort or gambling or betting of any form or nature.
- Income from any plant, machinery or furniture let out on hire where it is not the business of the assessee to do so.
- Income from securities by way of interest.
- Any kind of sum received by the assessee from his employees as a contribution to any staff welfare scheme.
However when an assessee makes the payment of such contribution within the time limit under the scheme of welfare, then the payment will be allowed as a deduction and only the balance amount will be taxable.
- Income from subletting the premises.
- Interest on the amount of bank deposits.
Which types of income can be classified as Income from Other Sources if it is not taxed under the head “Profits and gains of business or profession”?
- Any kind of contribution to a fund for the welfare of employees received by the employer.
- Any Income received by way of interest on securities.
- An Income earned by letting out or hiring of any plant, machinery or furniture item.
- Income from letting out of a plant, machinery or furniture along with building; both the lettings are inseparable.
- Any amount of money received including bonus under a Keyman Insurance Policy.
Tax Deduction Allowed for Income from Other Sources
Under Section 57 of the Income Tax Act, the following are the tax deductions allowed for Income from other sources:
- The expenses which are incurred for the realization of dividend or income of interest
- The deductions to the extent of the amount remitted within the due date are authorized. They are in respect to any contribution towards funds for the welfare of the employees
- In case of a family pension, deductions are allowed to the extent of 33-1/3% of pension amount or Rs. 15000, whichever is lower
- The deductions for current repairs, insurance and depreciation will only be allowed for income earned by the way of lease rental
- Deduction on interest received on compensation or enhanced compensation will be equal to 50%
What are the deductions which cannot be allowed while computing taxable income?
Under Section 58 of Income Tax Act, the following deductions cannot be claimed while computing income from other sources:
- Any kind of personal expenditure
- Any amount of Interest chargeable or any kind of salary which is payable outside India without any TDS deduction.
- Sum paid on account of wealth-tax
- Any expenditure concerning or related to winnings from lotteries, crossword puzzles, races and gambling etc.
- Any expenses specified under section 40A are not deductible.
What if you ignore “Other Sources of Income”?
- If you ignore, you may receive a notice from the Income Tax Department.
- You claim TDS but fail to report interest income, the Assessing Officer (A.O.) will consider your return as defective and will send a defective return notice under section 139(9).
- If the A.O. determines that you have misreported or under-reported your income, then you will have to pay taxes due along with interest u/s 234B and 234C. An assessing officer can even impose a penalty from 50 per cent to 200 per cent for misreporting or under-reporting of income u/s 270A.
Every taxpayer must understand that whether income from other sources is exempt or taxable. Moreover, he must disclose it in the income tax returns to avoid any kind of trouble or penal consequences.