Tax Tips On Income From Other Sources: Understanding Taxable Income From Dividends, Interest, Gifts, And More

Income from other sources is one of the five heads of income under the Income Tax (I-T) Act. This category includes any income that is not specifically taxable under any other head. Examples of such income include gifts, dividends, and more.

Taxable Income Sources under 'Income from Other Sources' (IFOS)

The following are some common income sources taxable under IFOS:

• Dividends from companies
• Winnings from lotteries, crossword puzzles, races (including horse races), card games, gambling, betting, and similar games
• Interest received on compensation or enhanced compensation
• Gifts
• Family pension
• Interest incomes (e.g., from post office savings accounts, bank savings accounts, bank fixed deposits)
• Interest received from the IT Department on refunds
• Insurance commission
• Income from letting out machinery, plant, or furniture
• Income from royalties
• Sums received under a keyman insurance policy, including bonuses
• Director's commission for standing as a guarantor to bankers
• Remuneration received by Members of Parliament
• Income from sub-letting of house property by a tenant
• Agricultural income exceeding Rs 5,000

This is an inclusive list and not exhaustive.

Additional Incomes Charged under IFOS

If not taxed under "Profits and Gains of Business or Profession," the following incomes are charged to tax under IFOS:

• Contributions to a fund for the welfare of employees received by the employer
• Interest on securities
• Letting out or hiring of plant, machinery, or furniture
• Letting out plant, machinery, or furniture along with a building where both lettings are inseparable

Taxability of Income from Other Sources

The taxability of incomes under this head varies according to their nature. Below is the tax treatment for some of these incomes:

Gift Tax: Taxability on Gifts

Gifts are categorised as follows:

• Monetary gifts
• Movable properties received without or with inadequate consideration
• Immovable properties received without or with inadequate consideration

Gifts are taxable under IFOS as per slab rates, with exceptions:

• Exemption if the aggregate value received during a financial year does not exceed Rs 50,000
• Property received without consideration if the total fair market value does not exceed Rs 50,000
• Gifts received from relatives, on marriage, under a will/inheritance, in contemplation of the payer's death, from local authority, or from specific charitable institutions

Tax Treatment on Life Insurance Policy

Amounts received under a Life Insurance policy, including bonuses, are exempt from tax under section 10(10D) of the Income Tax Act, with conditions:

• Exemption applies only if the annual premium does not exceed 20 per cent (10 per cent for policies after April 1, 2012) of the capital sum assured
• Amounts received on the death of the policyholder are exempt without conditions

For example, if someones life insurance policy has a sum assured of Rs 50,00,000 with an annual premium of Rs 82,000, any amount received on his death will be fully exempt. In other cases, the premium must not exceed 10 per cent of the sum assured for the amount to be exempt.

Tax on Dividend Income

• Dividends are taxable under IFOS as per slab rates
• Dividends from cooperative societies or foreign companies are fully taxable

Tax on Interest Income

• FD and recurring deposit interest income is taxable
• Banks deduct TDS at 10 per cent (20 per cent if PAN is not provided) if the total interest exceeds Rs 10,000
• Savings bank account interest and post office deposit interest are tax-deductible under sections 80TTA/80TTB within limits

Tax on Commission Income

• Commission or brokerage received, not part of business income, is taxable under IFOS at slab rates

Exempt Incomes 

The following interest incomes are exempt:

• Interest earned on tax-free bonds
• Interest in Public Provident Fund (PPF) account
• Interest earned on the post office savings bank account (exempt up to Rs 10,000 for individual accounts)

Non-Deductible Expenses under IFOS

According to Section 58 of the I-T Act, the following deductions cannot be claimed during the computation of income from other sources:

• Amounts specified under Section 40A
• Personal expenses
• Wealth tax payments
• Expenses related to winnings from lotteries, races, crossword puzzles, games, gambling, or betting
• Salaries payable outside India where tax is not deducted at the source
• Interest subject to tax payable outside India

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