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  • Calculate Income Tax on Income from Other Sources

    Income from Other Sources:

    Income from other sources is one of the five heads of income that the Income Tax Act, 1961 broadly classifies income under. This category includes earnings which can’t be accounted for under any of the other heads of income viz. Income from Salary, Income from House Property, Profits and Gains from Business or Profession and Income from Capital Gains.

    All taxable income under this head is calculated according to the accounting method the assessee follows viz. accrual or cash basis. The exceptions to this are dividend and interest income i.e. whatever the accounting method, assessees will have to declare and pay tax on dividend and interest earned during the previous year.

    The nature of income earned will decide whether income has to be shown under this head. However, there are some standard inclusions as outlined below.

    1. Dividends: Income by way of dividend is shown under this head. Deemed dividend as under section 2(22)(e) is fully taxable as is dividend from co-operative societies and foreign companies.
      Dividend not chargeable to tax includes dividends exempt U/S 10(34) i.e. dividend from Indian companies, dividend liable to corporate dividend tax, income on mutual fund units or income from UTI unit holder.
    2. Winnings: This includes winnings over Rs.10,000 from lotteries, puzzles, races, games and all forms of gambling and betting. E.g. card games, horse races, game shows etc.
    3. Interest received: All interest income earned in the previous year (on compensation/enhanced compensation) is taxable. However, 50% of this income can be claimed as deduction.
    4. Incomes not declared under the head ‘Profits and Gains of Business or Profession’: This includes contributions made to an employer’s employee welfare fund, interest earned on securities, rental income from furniture, plant and machinery (including building where it cannot be let out separately), keyman insurance policy proceeds.
    5. Gifts: Taxable gifts are declared under this head by individuals and HUFs. This includes monetary or non-monetary items received without any consideration or without adequate consideration. Non-monetary gifts include all immovable property and certain movable property.

    Gifts are taxed only if the total amount received during the previous year is more than Rs.50,000 and applies only to those gifts individuals or HUFs received after Oct.1st 2009. This doesn’t apply if the assessee receives money

    • from relatives or a local authority or a trust, fund, educational/medical institution, body or any such institution outlined under section 10(23C) and section 12AA
    • as a wedding gift
    • by way of being named in a Will or as inheritance
    • from a dying donor

    Gifts include monetary gifts, immovable property and specified property.

    Monetary gifts - sums of money received without any consideration or without adequate consideration.

    Immovable property as gifts - Property value will be the stamp duty value. Inadequate consideration will be if the property value is lower than stamp duty value.

    Specific movable property - Property here are shares, jewellery, securities, paintings, archaeological collections, sculptures and drawings and other artwork. As of 1st June 2010, bullion also forms a part of this list. Property value will be the fair market value. Inadequate consideration is when property value is below fair market value.

    Gifts from relatives means gifts from the assessee’s

    • parents, parents’ brothers or sisters (i.e. aunts, uncles)
    • any lineal predecessor/successor
    • brother, sister; brothers’ or sisters’ spouses (i.e. brothers or sisters- in-law)
    • spouse, spouse’s parents (i.e. in-laws), spouse’s brothers or sisters (i.e. brothers or sisters- in-law), spouse’s lineal predecessor/successor and their brothers or sisters.

    Calculating IT Tax on Income from Other Sources with Example:

    • Mr. Shah earned Rs.50,000 in dividends from trading in shares during the previous year. He asked his son-in-law Kabir how to include it in his tax returns. Kabir asks for a list of the companies whose shares Mr. Shah has bought. When he goes through this list, he finds that his father-in-law has invested in shares of Indian companies only. He finds favour with his father-in-law by telling him that the dividends he earned are not chargeable to tax, being dividends from a domestic company.
    • Mr. Shah also earned Rs.1 lakh as interest from fixed deposits held at various banks. Kabir tells him he will have to show the amount under ‘income from other sources’ which will add to his taxable income.
    • Kabir’s wife asks him whether she will have to pay tax on money given to her during the previous year from guests at their wedding. Kabir tells her not to worry since monetary gifts received during weddings are exempt from tax. Even gifts received from relatives after the wedding on various occasions are exempt.
    • However, a generous neighbour and long-time family friend presented them a cheque of Rs.60,000 on the birth of their first son. This would be chargeable to tax.
    • Kabir’s wife then enquires about the jewellery set her neighbour had presented to her on successful completion of her medical degree. It cost her close to Rs.1 lakh. He calms her worried nerves by reminding her that she graduated in the year 2008 and tax on gifts only apply to those received after Oct.1st 2009.
    • Similarly, they didn’t have to be worried about the money left to them by Kabir’s favourite uncle who passed away the previous year since it came to them by way of their uncle’s Will.

    These examples serve to highlight how tax rules regarding income tax from other sources are to be understood. The key elements are the type of income, the source of income, when the income was received and the amount of income received. By deciphering these elements, it becomes easy to figure out how to treat income from other sources.

    For better understanding of what is residual income to be included under this head, it is useful to first understand income that is accounted for under the other heads of income. Tax rules and exemptions have to be understood in totality and not isolated for proper computation. Also, filing of returns, which can be done online, will require an assessee to follow a proper format and process for accurate calculation and submission or returns.

    In the event of excess tax being filed, assessees have the option to receive a refund from the government by submitting duly filled forms in the required manner.

    News About Income Tax on Income from Other Sources

    • Income Tax Dept to welcome info on non-filers from external sources

      Income Tax Department has made a decision to consider and verify any evidence given to them from external sources like lenders, law enforcement agencies and overseas tax authorities to figure out who doesn’t file their income tax. The Central Board of Direct Taxes (CBDT) has already formed a commission to endorse definitions of some frequently used tax-related jargons. According to them anybody who is accountable to pay annual tax or file an IT Return is a non-filer. The aforementioned sources have the power to pull out information from their records. The clearly outlined definitions is bound to help in removing bias and discretion at the level of tax officers in construing the same and is expected to bring uniformity in categorization of information.

      5th May 2016

    • Millionaire Agriculturists under the Tax Microscope

      Seeing as more than 2000 entities have declared an income of more than INR 1 crore as agricultural income over the past nine years, the Income Tax department is all set to probe into such accounts for the case of tax evasion.

      Agricultural income is exempt from Income Tax in India and a PIL has been filed in the Patna High Court that some people might be routing illegal funds under the head of agricultural income. Following this, assessment officers of the IT Department have been asked to verify selected accounts for evidence of malpractice and fraud.

      14th April 2016

    • HC Calls for Proper Audit of funds used in Elections

      The High Court wants a proper auditing of accounts of the political parties. It also said that the most of the funds spent are unaccounted and want to infuse transparency and accountability of the large public money spent during the elections. The Law Commission of India suggested that the parties involved must disclose the amount of donations and donors and must include the PAN card numbers regardless of the source of income. The voluntary contributions are to be treated as income from other sources.

      28th March 2016

    • IT Exemption on Agricultural Income has been misused says Arun Jaitley

      The Finance Minister Arun Jaitley, has agreed and expressed that there are has been a misuse of IT exemptions on agricultural incomes. The latest reports for media houses have showed that as many as 321 people in Bengaluru, 275 people in Delhi, 239 in Kolkata, 212 in Mumbai, 192 in Pune, 181 in Chennai, 162 in Hyderabad, 157 in Thiruvananthapuram have declared of having agricultural income exceeding rupees one crore. Ordinary farmers get IT exemptions on agricultural incomes, make no sense, since their real income is lesser than the exemption-limit of Rs. 2.5 lakhs per annum

      18th March 2016


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