Chapter 8 : Income from Other

Sources (Section 56 to 59)

Advance Direct Tax and Service Tax

[Sub code : 441]
 Learning Objectives
• Income from Other Sources
• Deductions from Income from other Sources
• Conditions to be Fulfilled for Claiming the
Deductions
• Certain Amounts not Deductible (Section 58)
• Profits Chargeable to Tax (Section 59)

Chapter 8 : Income from Other Sources 2

 Income from Other Sources
• Income of every kind which is not to be excluded from the
total income under this Act shall be chargeable to income-tax
under the head "Income from other sources", if it is not
chargeable to income-tax under any of the heads specified in
Section 14
• Dividends, to the extent not exempted from tax
• Any Winnings from Lotteries, crossword puzzles, races
including horse racing, card games or any other games of any
sort or from gambling or betting of any form or nature
whatsoever
• income by way of interest on securities, if the income is not
chargeable to income-tax under the head "Profits and gains of
business or profession"

Chapter 8 : Income from Other Sources 3

 Contd…
• Income from machinery, plant or furniture belonging to the
assessee and let on hire, if the income is not chargeable to
income-tax under the head "Profits and gains of business or
profession“
• 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“
• 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, the income from such letting, if it is not
chargeable to income-tax under the head "Profits and gains of
business or profession";

Chapter 8 : Income from Other Sources 4

 Contd…
• Where any sum of money exceeding Rs.25,000/- is received
without consideration by an individual or a Hindu
undivided family from any person on or after the 1st day of
September, 2004, the whole of such sum
• Where an individual or Hindu undivided family receives
from any person or persons on or after the 1st day of
October, 2009, any Gift in cash or kind exceeding Rs.
50,000/- without consideration
• Income by way of interest received on compensation or on
enhanced compensation referred to in clause (b) of section
145A

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 Gift in Cash or Kind exceeding Rs. 50,000/-
• Where an individual or Hindu undivided family receives, in any
previous year, from any person or persons on or after the 1st day
of October, 2009, -
 Any sum of money, without consideration, the aggregate value
of which exceeds fifty thousand rupees, the whole of the
aggregate value of such sum;
 Any immovable property, -
– Without consideration, the stamp duty value of which
exceeds fifty thousand rupees, the stamp duty value of such
property;
– For a consideration which is less than the stamp duty value of
the property by an amount exceeding fifty thousand rupees,
the stamp duty value of such property as exceeds such
consideration;
Chapter 8 : Income from Other Sources 6
 Contd…
 Any property, other than immovable property, -
‐ Without consideration, the aggregate fair market value of
which exceeds fifty thousand rupees, the whole of the
aggregate fair market value of such property;
‐ For a consideration which is less than the aggregate fair
market value of the property by an amount exceeding
fifty thousand rupees, the aggregate fair market value of
such property as exceeds such consideration
will chargeable to tax under the head “Income from
Other Sources”.

Chapter 8 : Income from Other Sources 7

 Contd…
• This clause shall not apply to any sum of money or
any property received in cash or kind –
 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
 From any local authority
 From any fund or foundation or university or other
educational institution or hospital or other medical
institution or any trust or institution

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Some instances of Income from Other Sources
Where a company, invested its share capital in banks pending
commencement of business, interest received was taxable as its
income from other sources and not as business income
Tax on salary of assessee borne by payer, for whom assessee was
working under a contract, under a legal obligation, was
assessable as income of payee under "other sources“
Where the liquidator realized certain amounts by way of sale of
the assets of the company in liquidation and invested the
amounts in interest-bearing deposits, he was merely realizing
the assets of the company and could not be considered as
carrying on any business of the company; hence, interest earned
on the deposit would be assessable as 'Income from other
sources
Gratuity received by a director who, under the relevant
contract, is not an employee or servant of the company, is
assessable as income from other sources
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 Contd…
Interest received from Government under section 214 for any
of the tax refunds is taxable under the head 'Income from
other sources‘
Interest received by an employee on his own contributions to
an unrecognized provident fund is assessable under the head
'Income from other sources‘
Where the assessee's business has not commenced, amounts
realized by assessee by sale of tender forms and empty bags
would be capital receipts and cannot be brought to tax in the
assessee's hands as 'income from other sources‘
Family pension, to the extent not chargeable to tax

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 Deductions from Income from Other Sources
Nature of Income Extent of Deduction Available
Dividends (other than referred to in Any reasonable sum paid by way of
section 115-O) OR Interest on securities commission to a banker to realize such
dividend or interest
Any sum received by the assessee from his Amount credited by the assessee to the
employees to any PF, Superannuation or employee’s account in the relevant fund
ESI fund on or before the due dates
Income from Machinery, Plant & Furniture Where premises occupied as Tenant – Rent paid
belonging to assessee and let on hire, if the + Repairs & Maintenance
income is not chargeable under the head – Other than Tenant – Actual amount paid by him
“Profit and gains of business or profession” for Rent, Rates, Taxes, Repairs & Maintenance ,
Insurance Premium etc. + Depreciation
Where an assessee let on hire machinery,
plant or furniture belonging to him and the
letting of building is inseparable from the letting Actual amount paid by him for Rent, Rates,
of said machinery, plant or furniture, if the Taxes, Repairs & Maintenance , Insurance
income is not chargeable under the head – Premium etc. + Depreciation
“Profit and gains of business or profession”

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 Contd…
Nature of Income Extent of Deduction Available

In case of Income in the nature of Family Deduction of –

Pension  33.33 % of such income OR
Rs. 15,000/-
Whichever is Lower

Deduction of Residuary Category – Any Such deduction of expenditure laid out or

other expenditure incurred expended wholly or exclusively for the
purpose of making or earning such
income.

Income by way of interest received on A deduction of 50% of such income

compensation or enhanced compensation

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 CONDITIONS TO BE FULFILLED FOR
CLAIMING THE DEDUCTIONS
 The expenditure must have been incurred solely and
exclusively for the purpose of earning income or making
profit.
 The expenditure should not be in the nature of a capital
expenditure.
 The amount in question should not be in the nature of
personal expenses of the assessee.
 The expenditure should be incurred in the accounting year.
 There must be a clear nexus between the expenditure
incurred and the income sought to be earned.
 The dominant purpose of the expenditure incurred must be to
earn income.

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 CERTAIN AMOUNTS NOT DEDUCTIBLE
 Any personal expenses of the assessee;
 Any interest chargeable under this Act which is payable outside
India on which tax has not been paid or deducted under the Income
Tax Act
 Any payment which is chargeable under the head "Salaries", if it is
payable outside India, unless tax has been paid thereon or
deducted there from
 Any sum paid on account of Wealth-Tax
 No deduction in respect of any expenditure or allowance shall be
allowed under any provision of this Act in computing the income by
way of any winnings from lotteries, crossword puzzles, races
including horse races, card games and other games of any sort or
from gambling or betting of any form or nature whatsoever

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 PROFITS CHARGEABLE TO TAX
• The following income would be treated as Income under the
head Income from Other Sources under appropriate
circumstances just as they would be treated as business income
while computing "Profits and gains of business or profession" –
 Remission or cessation of trade liabilities
 Successor of a business obtaining any benefit in respect of
deduction availed by the predecessor.
 In case of power-generating/distributing units, the balancing
charge in respect of any building, machinery, plant or furniture
 Bad debt written off (and allowed) and subsequently recovered -
is treated as income of the previous year in which the sale took
place
 Remission or cessation of trade liabilities of discontinued
business
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