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INDEX

  • Whats is Income from Other Sources

  • Types of Income From Other Sources

  • Additional Classifications

  • Taxation on Specific Income Types

  • How to Compute Net Earnings Under income from Other Sources

  • Reporting Interest from Fixed and Recurring Deposits on Tax Return

  • Tax Deductions Not Allowed

Income From Other Sources

What is Income from Other Sources?

Income from Other Sources, as defined under Section 56(1) of the Income Tax Act, 1961, includes income that doesn’t fall under the other specified heads like Salary, House Property, Business or Profession, and Capital Gains. This category serves as a “catch-all” for income types not classified elsewhere.

Common Types of Income from Other Sources

  • Interest Income
    Interest earned from savings accounts, fixed deposits, bonds, and other financial instruments is taxed based on applicable income tax slab rates.
  • Rental Income
    Income generated from renting residential or commercial properties is taxable. The taxable amount is the rent received, minus standard deductions and municipal taxes.
  • Dividends and Mutual Funds
    Dividends from domestic companies are generally tax-free, but dividends from foreign companies are taxable. Income from mutual funds, including capital gains, is also categorized here.
  • Family Pension
    Pension received by family members after the taxpayer’s death is taxable. The tax rate depends on the relationship to the deceased.
  • Lottery and Gambling Winnings
    Winnings from lotteries, card games, betting, and gambling are taxable, often at a higher rate. TDS (Tax Deducted at Source) may be deducted by the payer.
  • Gifts and Cash Prizes
    Cash gifts exceeding specified limits are taxable. However, gifts from relatives or received on special occasions may be exempt from tax.
  • Royalties
    Income earned through royalties, such as for intellectual property like books or music, is taxable under this category.
  • Club Membership Fees
    Any income from club membership fees is taxable.
  • Income from Agricultural Activities
    Agricultural income is typically exempt but may be taxable if it exceeds certain thresholds.
  • Commission Income
    Income from commissions or brokerage, such as stockbroking or real estate, is taxable under this head.
  • Annuity Payments
    Annuities received from insurance companies or other entities are also taxable under “Income from Other Sources.”

Additional Classifications

The following types of income can also be classified as “Income from Other Sources” if they are not already taxed under the head Profits and Gains of Business or Profession:

  • Any contributions made to a fund for the welfare of employees received by the employer.
  • Income earned from letting out or hiring of plant, machinery, or furniture.
  • Income from the letting of machinery, plant, or furniture along with a building, in cases where the rentals are inseparable.
  • Money received under a Keyman Insurance Policy, including bonuses.

Taxation of Specific Income Types

Interest on Savings Accounts

Interest earned from savings accounts is one of the most common income types under this head. It is taxed according to the applicable tax slab rates.

  • No TDS on Savings Account Interest:
    TDS will not be deducted on Savings account interest but it is taxable as income from other sources.
  • Tax Deduction under Section 80TTA
    Under Section 80TTA, individuals can claim a deduction of up to ₹10,000 for interest income from savings accounts. Interest exceeding this limit is taxable in old tax regime. Banks Don’t Deduct Tds on interest on savings Upto Rs. 10,000.
Tax on Fixed Deposits

Interest from fixed deposits, Recurring deposit & any other time deposit falls under “Income from Other Sources.” TDS is deducted if the interest exceeds:

  • ₹40,000 for regular individuals
  • ₹50,000 for senior citizens

Note: Even if TDS is not deducted, you must report the interest income when filing your return.

TDS Provisions For Time Deposits
  • TDS is deducted if the total interest paid or credited during a financial year exceeds the limit of INR 40,000 from banks, cooperative societies, and post offices & Rs. 50,000 for other non-bank entities. 
  • For senior citizens, no TDS will be deducted on interest earned till INR 50,000.
Deduction under Sec 80TTB:

Senior citizens can claim a higher exemption limit of ₹50,000 on interest income from fixed deposits under Section 80TTB.

How to Calculate Net Earnings Under “Income from Other Sources”

To compute net earnings, follow this formula:
Net Income from Other Sources = Gross Income – Deductions Allowed Under Section 57

Steps:

  1. Identify Your Gross Income: This includes interest, rent, dividends, and other types of income.
  2. Calculate Allowable Deductions: Expenses incurred to earn the income can be deducted. For example, commission, rent, or depreciation on assets used for generating income.
  3. Subtract Deductions: This gives you the net income.

Example Calculation:

  • Gross Income:
    • Interest on savings accounts: ₹4,000
    • Dividend income: ₹6,000
    • Rental income: ₹10,000
  • Total Deductions: ₹2,000 (machinery rental expense)
  • Net Income: ₹20,000 – ₹2,000 = ₹18,000

Reporting Interest from Fixed and Recurring Deposits on Tax Return

Sum up the total interest from all fixed and recurring deposits. Include this amount under “Income from Other Sources” in your tax return. The interest will be taxed according to your applicable income tax slab.

Tax Deductions Not Allowed

  • Personal expenses
  • Interest payable outside India without tax payment
  • Payments taxable under the head Salaries
  • Payments related to wealth tax

Conclusion

“Income from Other Sources” is a diverse category that includes various types of income not covered under specific heads. It’s essential to accurately report all income in this category to avoid penalties. Deductions are available for certain types of income, which can help reduce your tax burden.

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