Income from Other Sources [Sections 56 to 59]

Introduction
This head is the residuary head of income and brings within its scope all the taxable income, profits
or gains of an assessee which fall outside the scope of any other head. Any income which cannot be
taxed under the first four heads shall be taxable under the head other sources.

Specific incomes taxable under the head Income from Other Sources - Section 56(2)
In particular, the following incomes, shall be chargeable to income-tax under the head ―Income from
other sources‖, namely: —

1) Casual income i.e. any winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort, gambling, betting, etc. (taxable @ 30% + surcharge (if
applicable) + health & education cess u/s 115BB)
Note: No expenditure or allowance can be allowed from such income, deductions under Chapter VI-
A cannot be claimed from such income; adjustment of unexhausted basic exemption limit is also not
permitted against such income
2) Dividends*
3) Interest received on compensation or enhanced compensation (taxable in the year of receipt)
4) Advance forfeited on or after 1st April 2014 due to failure of negotiation of transfer of capital
asset
5) Gifts in excess of Rs. 50,000#
6) Family pension
7) Salary of MLAs/ MPs
8) Compensation on termination and modification of terms and conditions of employment.
#
Taxation of Gifts:
Nature of Assets Particulars Value Taxable
Without If the aggregate value is in excess of Rs. 50,000, then whole
Sum of Money
consideration of the aggregate value will be chargeable to tax
Without The Stamp duty value of the property would be taxed as
Immovable property
consideration income of the recipient, if it exceeds Rs.50,000
Without the aggregate fair market value of such property on the date
Movable Property
consideration of receipt, if it exceeds Rs.50,000
If (Stamp duty value – Consideration) of the property is
greater than, Rs. 50,000 or 5% of consideration whichever is
Inadequate
Immovable property higher, then difference between stamp duty value & the
consideration
consideration shall be chargeable to tax i.e. (Stamp duty value
– Consideration) = Income
If (Aggregate fair market value [FMV] – Consideration) is
Inadequate greater than, Rs. 50,000, then difference between Aggregate
Movable Property
consideration FMV & the consideration shall be chargeable to tax i.e.
(Aggregate FMV – Consideration) = Income
However, any sum of money or value of property received in the following cases would be outside
the ambit of this provision:
 from any relative; or
 on the occasion of the marriage of the individual; or
 under a will or by way of inheritance; or
 in contemplation of death of the payer or donor, as the case may be; or
  from the any local authority / from any fund / foundation / university / other educational
institution / hospital / other medical institution / any trust / institution referred to in Sec
10(23C); or
 from any trust or institution registered u/s 12AA
 from an individual by a trust created or established solely for the benefit of relative of the
individual

For the above purposes, the term ―relative‖ would mean

(a) In case of an individual
(i) Spouse of individual;
(ii) Brother or sister of the individual;
(iii) Brother or sister of 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 spouse of the individual;
(vii) Spouse of any person referred to above.
(b) In case of HUF, any member thereof.

*Tax on Dividend:
Dividend from Indian company is exempt from tax in hands of shareholders u/s 10(34). However
exemption is not available for dividend, if aggregate of dividend exceeds Rs 10 Lakh. If Dividend
exceeds 10 Lakhs, then such excess over 10 Lakh will be taxable @ 10% based on the provisions of
Section 115BBDA. The taxation of dividend income in excess of Rs. 10 lakhs shall be on gross basis
i.e. no deduction of expenses or allowances or set off of losses will be allowed to the assessee while
computing such dividend income.

The following income is chargeable under the head “Income from Other Sources” only if such
income is not chargeable under the head “Profit and Gain from Business or Profession”:
1) Any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy, if such income is not chargeable to income-tax under the head ―Profits and
gains of business or profession‖ or under the head ―Salaries‖.
2) Income from machinery, plant or furniture belonging to the assessee and let on hire
3) Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings,
and the letting of the buildings is inseparable from the letting of the said machinery, plant or
furniture
4) Any sum received by an employer-assessee from his employees as contributions to provident
fund, superannuation fund for welfare of the employees
5) Interest on securities
Note: Interest on Post Office Savings Bank Account would be exempt from tax to the extent of Rs.
3,500 in case of an individual account & Rs. 7,000 in case of a joint account [Sec 10(15)].

The following are some of the examples of income generally taxable u/s 56 (1)
1) Income from sub-letting of house property
2) Ground rent / Rent of plot of land
3) Composite Rent – combined rent from letting out Building along with Plant & Machinery,
Furniture or other assets.
4) Agricultural income received from outside India;
5) Income from royalty (if it is not income from Business/ Profession);
6) Director‘s fee;
7) Director‘s commission for standing as guarantor to bankers;
8) Director‘s commission for underwriting shares of new Company;
9) Gratuity paid to director who is not employee of the Company
10) Remuneration received from a person other than his employer, e.g., examination remuneration
received by a teacher;
11) Insurance commission
12) Mining rent and royalties;
13) Interest on foreign Government securities;
14) Annuity payable under a will, contract, trust, deed (except annuity payable by employer which
is chargeable under the head ―salaries‖;
15) In case of retirement, interest on employee‘s contribution if provident fund is unrecognized;
16) Income from undisclosed Sources;
17) Interest on bank deposits and loans
18) Income from racing establishment;
19) Compensation received for use of business assets
20) Dividend from foreign company / cooperative society
21) Interest paid by the Government on excess payment of advance tax, etc.
22) Interest on Income tax refund

Allowable deductions: Section 57

1) Any reasonable sum paid by way of commission or remuneration to a banker or any other person
for the purpose of realising dividend or interest or dividend on behalf of assessee
2) Any recovery from employees as contribution to any provident fund etc.
3) The amount paid on account of any current repairs to the machinery, plant or furniture
4) Insurance premium paid on damage or destruction of the machinery or plant or furniture
5) The normal desperation allowable in respect of the machinery, plant or furniture, due thereon
6) In case of family pension, a deduction of a sum equal to 1/3rd of such income or Rs. 15,000,
whichever is less
Note: The family pension received by the widow or children or nominated heirs of a member of the
armed forces (including para-military forces) and the family pension received by any member of the
family of an individual who had been in the service of Central / State Government & had been
awarded ―Param Vir Chakra‖ or ―Maha Vir Chakra‖ or ―Vir Chakra‖ or other notified gallantry
awards would be exempt u/s 10(19) & 10(18) respectively.
7) Any other expenditure not being in the nature of capital expenditure laid out or expended wholly
and exclusively for the purpose of making or earning such income.
8) 50% of interest received for late payment of compensation from the Government or other similar
agency in connection with compulsory acquisition of land or building
9) While computing income under the head other sources, expenses incurred in connection with
earning of such income shall be allowed to be deducted.

Amounts not deductible: Section 58

1) Personal expense of the assesse
2) Any interest/Salary chargeable to tax under the Act which is payable outside India on which tax
has not been paid or deducted at source
3) capital expenditure
4) Any payment made in a single day in excess of Rs. 10,000 in aggregate other that by way of
account payee cheque or draft covered under section 40A.
5) Income-tax and wealth-tax paid
6) Expenditure or allowance for earning income from Lottery, Crossword Puzzles etc., (except
Income from owning & maintaining race horses)
7) 30% of expenditure payable to a resident on which TDS has not been deducted or after deduction
has not been paid before due date.

Profits chargeable to tax: Section 59

If the assessee has claimed any expenditure while computing income and subsequently he has
recovered the same amount, the amount so recovered shall be considered to be income of the year in
which amount has been recovered.

Applicable rate of tax in respect of casual income: Section 115BB

1) Casual income includes winning from lotteries, crossword puzzles, Races including horse races,
card game and other game show on electronic media or any other gambling or betting of any sort,
etc. It shall be chargeable to tax at a flat rate of 30% plus surcharge, if applicable, plus health and
education cess
2) No expenditure or allowances can be allowed from such income, deduction under chapter VI-A
is not allowable from such income, basic exemption limit shall not be applicable in case of
Casual Income. Adjustment of unexhausted basic exemption limit is also not permitted against
such income, losses from any other source or under any other head of income cannot be set-off
from Casual Income
3) Where in any problem ‗lottery received‘ is given, then it indicates it is lottery income as reduced
by tax deducted at source from such lottery income. Such net lottery Income (i.e. lottery income
– TDS) need to be grossed up

NOTES
Lottery ticket Winning of lottery by the trader of lottery ticket out of unsold tickets shall be
held as stock in taxable under the head ―Profits & Gains of Business or Profession.‖
trade Director of State Lotteries vs CIT
Income of Income of jockey shall be taxable under the head ―Profits and Gains of Business or
jockey Profession‖.
Winning from Winning from a motor car rally not be considered as causal income because such
a motor car an income is the result of application of skill and effort; hence, it shall be
rally taxable as usual under the head “Income from Other Sources.”
Activity of  Activity of owning and maintaining race horse shall not be treated as casual
owning and income but taxable under the head ‗Income from Other Sources‘.
maintaining  Expenditure incurred in respect of such activity shall be allowed as deduction
race horses  Such income shall be taxable at the usual rate of tax.
As per Sec. 194B lottery income is subject to TDS @ 30% if it exceeds Rs. 10,000
TDS on casual and as per Sec. 194BB Winning from horse races is subject to TDS @ 30% if it
income exceeds Rs. 10,000.

Income exempt from tax: Sec 10

1) Compensation received or receivable by an individual or his legal heir on account of disaster.
2) Any interest or dividend from the UTI or Mutual Fund notified under section 10(23D)
3) Dividend income from the domestic company in the hands of the shareholder
4) Education scholarship, Scholarship granted to meet education cost of children of employee
5) Sum received under Life Insurance Policy including sum by way of bonus allocated on it.
6) Interest on following notified bonds/certificates are exempt from tax: -
Interest on PPF Capital Investment Bonds
Notified bonds issued by PSU or local authority or state pooled finance entity
Notified Relief Bonds Gold deposit Bonds