INCOME FROM OTHER SOURCES

CHARGING SECTION (SECTION 56)

 Income not chargeable to tax under any of the first four heads is chargeable under the head “Income from other sources”. (Section 56) Method of Accounting: Under this head, the assessee has the option of computing its income either by following mercantile or cash basis of accounting.

LIST OF INCOMES TAXABLE UNDER INCOME FROM OTHER SOURCES

Section 56(2) provides list of certain incomes which are charged to tax as income from other sources.

(i) Taxability of Dividends [Section 56(2)(i)]

Dividend income is always taxable as Income from other sources whether shares are held as stock in trade or as an investment. For the purpose of set off of losses, dividend income shall be treated as business income. Deduction in connection with earning such income like interest and collection charges are allowed as deduction. Finance Act, 2014 provides for grossing up the dividend for computing the tax liability on account of dividend distribution tax. With the grossing up, the effective tax rate will be 20.47% instead of 16.995%.

(ii) Taxability of Interest on securities [Section 56(2)(id)]

Where securities are held as investment, then interest is chargeable under the head Income from other sources. Deduction shall be allowed under section 56 to 59 of the Act in respect of such income. Deduction in the nature of expenditure incurred for earning interest and collection charges are allowed as deduction for computing such income. Interest is chargeable to tax as per the method of accounting (i.e. mercantile or cash) followed by the assessee. Interest on securities falls due on the date specified by the issuing authority. Whole of interest which falls due on the due date is chargeable to tax for that person even if securities are held by him for a day.

(iii) Taxability of Family Pension

Family pension received by the legal heirs of the deceased employee is taxable in the hands of the recipient. A deduction of lower of 1/3rd of the pension or ` 15,000 is allowed as deduction for the recipient.

(iv) Taxability of money received on Keyman Insurance Policy

Where maturity amount is received by the legal heir on the death of employee under keyman insurance policy, then such amount is taxable as Income from other sources in the hands of recipient.

(v) Taxability of Income from letting out of plant and machinery, furniture [Section 562(ii)]

These profits/incomes would be taxable as income from other sources if not charged to tax as business or profession income. Depreciation is allowed as deduction.

(vi) Taxability of Income from composite letting of plant and machinery, furniture with building [Section 56(2)(iii)]

If letting of building is inseparable from the letting of the said machinery, plant or furniture, then income from such letting is charged to income-tax as income from other sources. Depreciation is allowed as deduction.

(vii) Taxability of Casual Income [Section 56(2)(ib)]

Casual income (like lottery or winning from card games or other games of any sort) is chargeable to tax as income from other sources. No deduction is allowed in respect of such income. Further, deduction under section 80C to 80U is also not allowed as deduction. Casual income is taxable @ 30% flat rate (and surcharge and cess, as applicable).

(viii) Taxability of profit from activity of owning and maintaining race horses [Section 56(2)]

Such profits are chargeable as income from other sources. Any allowances or expenses incurred in connection with the activity of owning and maintaining race horses is allowed as deduction.

(ix) Taxability of Gifts [Section 56(2)(vii)]

(a)Gift of Money

Where an Individual or a HUF receives in any previous year from any person or persons on or after 1/10/2009 any sum of money, without consideration, the aggregate value of which exceeds ` 50,000 then the whole of the aggregate value of such sum is chargeable under the head “Income from other sources”.

Exceptions

However, this clause shall not apply in following cases:

(a) Gifts received from any relative on any occasion is not taxable. Relative for above purposes include following: In case of Individual:

(i) Spouse of the individual;

(ii) Brother or sister of the individual;

(iii) Brother or sister of the spouse of the individual;

(iv) Brother or sister of either of the parents of the individual;

(v) Any Lineal ascendant or descendant of the individual;

(vi) Any lineal ascendant or descendant of the spouse of the individual, and

(vii) Spouse of a person referred to in items (ii) to (vi) above. In case of a Hindu Undivided Family, any member thereof.

(b) Gifts received from any person on the occasion of the marriage of the individual is not taxable;

(c) Gifts received under a will or by way of inheritance is not taxable;

(d) Gifts received in contemplation of death of the payer is not taxable;

(e) Money received from local authority, any fund, foundation, university, other educational institution, hospital, medical institution, any trust or any institution referred to in section 10(23C) and money received from a charitable trust registered under section 12AA is not taxable;

(f) By way of transfer not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of Section 47. [Amendment vide Finance Act, 2016]

(b) Gift of Immovable Property

Where an individual or a HUF receives in any previous year, from any person or persons on or after 1/10/2009, any immovable property (being a capital asset) without consideration, the stamp duty value of which exceeds `50,000, then the stamp duty value of such property is taxable as Income from other sources. Exceptions: Further, the exceptions as applicable for gift of money, will also apply in case of gift of immovable property.

(c) Taxability of Immovable Property Received for Inadequate Consideration [Finance Act, 2013]

where any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property would be charged to tax in the hands of the individual or HUF as income from other sources. The existing provision does not cover a situation where the immovable property has been received by an individual for inadequate consideration.

(d) Gift of Movable Property

Where an individual or a HUF receives, in any previous year, from any person or persons on or after 1.10.2009 any specified movable property being capital asset without consideration, the aggregate fair market value of which exceeds ` 50,000, then the whole of the aggregate fair market value of such property is taxable as income from other sources. However, if such asset is received for a consideration which is less than the aggregate fair market value of the property by an amount exceeding ` 50,000, the aggregate fair market value of such property as exceeds such consideration is taxable as income from other sources. Specified Movable property: Jewellery; Archaeological collections; Drawings; Paintings; Bullion; Sculptures; Any work of art; Shares and Securities. Fair market value means the value determined in accordance with the prescribed method.

Exceptions: The exceptions as applicable for gift of money, will also apply in case of gift of immovable property.

OTHER INCOMES CHARGEABLE AS INCOME FROM OTHER SOURCES

(a) Fees for attending the Board meetings (other than that received by Whole time or Executive director;

(b) Examinership remuneration received otherwise in capacity of an employee;

(c) Remuneration received by MPs or MLAs;

(d) Income from subletting of a house property;

(e) Rent from a vacant piece of land;

(f) Interest on bank deposits or on deposits with companies;

(g) Insurance commission;

(h) Agricultural income from outside India;

(i) Royalty income, if not taxable as business income

 (j) Interest on delayed refund of income tax.

Reference:

ICSI

ICAI

Income Tax Law & Practice by Gaur & Narang