Unit – 3: Income From other sources (Part – 2)
Income from other sources (Basis of Charge – Sec.56)
Income from other sources is the last and residual head of income. A source of income that does not specifically fall under any one of the other four heads of income (viz., “Salaries ”, income from house property ”, profits and gain of business or profession ’’, Capital gain ’’) is to be computed and brought to charge under section 56 under the head ’’Income from other source’’.
To put the aforesaid matter differently, the residuary heads of income can be invoked only if all the following conditions are satisfied:
1. Income –There is an income.
2. Income shall not be exempt – That income is not exempt from tax under section 10 to 13 A.
3. Not covered by other heads -That income is neither salary income, nor income from house property, nor income from business /profession, and neither capital gains. These four categories of income are not chargeable to tax under head ‘‘Income from other sources’’.
If the above three condition are satisfied, the income is taxable under the head ‘‘Income from other sources’’. All incomes chargeable to tax under this head are divided into 2 categories:
A. General Incomes [Sec. 56(1)]
B. Specific Incomes [Sec. 56(2)]
Sec. 56(1): General Incomes: Following are the popular and general incomes that are offered for tax under the head “income from other sources”:
a) Income from subletting;
b) Interest on bank deposits and loans;
c) Income from royalty (if it is not an income from business/profession);
d) Director’s fee;
e) Ground rent;
f) Agriculture income from a place outside India;
g) Directors ‘s commission for standing as guarantor to bankers;
h) Director’s commission underwriting shares of new company;
i) Examination fees received by a teacher from a person other than his employer
j) Rent of plot of land
k) Insurance commission;
l) Mining rent and royalties
m) Casual income;
n) Annuity payable a will, contact trust deed (excluding annuity payable by employer which is chargeable under the head ‘’
o) Salary to payable to member of parliament;
p) Interest on securities issued by a foreign Government;
q) Family pension received by family members of a deceased employee;
r) In case of retirement, interest on employee’s contribution if provident fund is unrecognized;
s) Income from undisclosed sources;
t) Gratuity paid to a director who is not an employee of the company;
u) Income from racing establishments;
v) Compensation received for use of business assets;
w) Annuity payable to the lender of a trademark.
[Sec. 56(2)] :Specific Incomes: Following incomes are the specific incomes which are chargeable to tax under the head “Income from other sources”
a) Dividend : if such income is not chargeable to income-tax under the head "Profits and gains of business of profession.
b) Winning from Lotteries , etc.: it includes any winning from lotteries, crossword puzzle, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
c) Interest on securities : Interest on Debentures, Government securities / bonds is taxable under the head “ Income from other sources”
d) Rental income of machinery, plant or furniture: Rental income from machinery, plant, or furniture let on hire is taxable as income from other sources.
e) Rental income of letting out of plant, machinery or furniture along with letting out of building and the two meetings are not separable.
f) Sum received under Keyman Insurance Policy :
g) Gift : if any sum of money is received during a previous year without consideration by an individual or a HUF from any person or persons exceeds Rs. 50,000 the whole of such amount is taxable in the hands of the recipient as income from other sources.
Income chargeable under this head is computed in accordance with the method of accounting regularly employed by the taxpayer. For instance, if book of accounts are kept on basis of mercantile system, income is taxable and expenditure is deductible on ‘‘due basis, whereas if books of account are kept on the basis of cash system, income is taxable on ‘‘receipt ’’basis and expenditure is deductible on ‘‘payment ’’basis.
[Sec.57]: DEDUCTIONS FROM INCOME FROM OTHER SOURCES
The income chargeable to tax under this head is computed after making the following deductions:
1) In case of Dividends and interest on Securities: In the case of dividends or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realizing such dividend 3[or interest] on behalf of the assessee;
2) In case of Income from letting of machinery , plant or furniture with or without building : The following deductions shall be allowed from the income earned by letting of machinery , plant or furniture with or without building.
a) Expenditure incurred on current repairs of plant, machinery, furniture or building.
b) Insurance paid regarding these assets.
c) Depreciation of plant, machinery and furniture . Depreciation in respect of Building will be allowed only if the assessee is the owner. It will not be allowed if the assessee is lessee or mortgagee in possession of the building.
3) Deduction of amount deposited: Any amount received by employer from his employee as their contribution to provident fund, E.S.i. Fund or superannuation fund is deemed as income u/s 59(ic) if not taxable under the head “Profit and Gains of Business or Professions.
4) Standard Deduction in the case of family pension [ Sec.57(iia)]: In the case of income in the nature of family pension, the amount deductible is Rs. 15,000 or 33 ½% of such income, whichever is less.
5) Any other expenses fro earning income [ Sec. 57(iii)] : If the following 4 basic conditions are satisfied :
a) The expenditure should be incurred solely for earning such income
b) It should not be in the nature of capital expenditure
c) Is should not be in the nature of personal expense.
d) Is should be incurred in the relevant accounting year.
6) With effect from the Assessment Year 2010-11, in case of interest on Compensation or Enhanced Compensation, 50% of such interest.
Specific disallowance u/s 58
a) Any Personal Expenditure [Sec-58(1)(a)(i)]
b) Interest which is payable outside India on which tax is not deducted or deducted but not paid.[ Sec-58(1)(a)(ii)]
c) Salary payable outside India and if tax is not deducted or if deducted but not paid.[ Sec-58(1)(a)(iii)]
d) Wealth Tax: - Any sum paid on account of wealth tax.[ Sec-58(1)]
e) Amount specified by Sec-40A [Sec-58(2)]
f) Expenditure in respect of royalty and technical fees received by foreign company. Sec-58(3)
g) Expenditure in respect of winning from lottery or games etc. Sec-58(4)