For salaried individuals filing income tax returns is an easier process as their employers are liable to deduct tax on their income. Also, a salary income is fixed and so much easier to identify. However, there can be other incomes which are taxable above a specified limit but do not fall in either of four categories you report when filing your returns. All such incomes are classified as “Income from other sources”.
There is heavy confusion with regard to this head and not only CAs but an individual should also be aware about their income taxability from whatever sources they receive. Missing out any information on these can lead to demand of penalty from your tax collectors.
Let’s look at what constitute the head “Income from other sources’-
First of all, there are some precondition that has been laid down to include the income under head “Income from other sources”. It states that the income should not exempt under provision of this act and such income should not be chargeable to tax under any other head viz., “Income from salary’, ”Income from House Property”, “Profit and Gains of Business & Profession” and “Income from Capital Gain”.
What is included under this head?
1. Dividend Income: Dividend received from domestic company, Mutual Funds or a Foreign company are covered under this source. Since dividends from domestic company and mutual funds are exempted from tax, only dividend received from a foreign company is taxed. However, dividend is defined clearly under Sec 2(22) which states that it also includes debentures issued to shareholders and bonus shores allotted to preference shareholders along with distribution in case of liquidation of company.
2. Winning from Lotteries, Crossword Puzzles, Horse Races and card Games: Remember KBC where people won from lakhs to crores. Any income you derive from the winning from lotteries, crossword puzzles, races including horse races, card game and other games of any sort and gambling or betting of any form or nature whatsoever is chargeable to tax under this head. One important factor to note is that the entire income is taxable as No deduction is respect of any expenditure or allowance is allowed on such income and the tax rates applicable to these income are 30% (cess of 3%) irrespective of taxability of individual.
3. Interest on Securities: Interest income by way of investment in securities is chargeable under this head. There is no specific definition of security given by income tax but if we look at the general meaning then a security is an acknowledgement of a debt or claim, which is secured. Bonds, Central or state government securities, debentures issued by companies or local authorities are secured debts and hence falls in this category. Here also the income earned through investment in securities is taxed at special rate of 30% (cess 3%) irrespective of one’s income tax slab. However, any has an option of paying tax either on receipt basis or accrual basis. But an assesse should be following the same accounting system in all it’s income.
4. Pension Received by legal heirs of Deceased: After the death of an employee, any pension received by legal heirs is taxable under head “Income from other sources”. However, as per sec 57 legal heirs can claim standard deduction of 33 1/3% or Rs 15000 whichever is less.
5. Gifts of money from unrelated Person: Any sum of money (in excess of prescribed limit of Rs 50000) received without consideration by any individual is chargeable to income tax in the hands of receiver. According to section 56(2) the gifts not only include money from unrelated person but also the gift of property or property acquired for inadequate consideration. Foreign/NRE gifts are also covered in this section.
Apart from these major incomes there are other incomes which are chargeable to income tax under this head.
Here is a list of some of them:
1. Insurance Commissions
2. Interest on Bank deposits/deposit with companies
3. Interest on loans
4. Interest received on unrecognized PF
5. Rent from a vacant piece of land
6. Interest received on delayed refund
7. Some Perquisites to director of a company
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