Taxation and Deductions on Income from Other Sources

Income tax is the most direct form of tax applicable on Indian citizens. Salaried individuals pay it in accordance with the income they earn and the tax slab they fall under. However, apart from salary, many people also earn income from a variety of other sources. 

The Income Tax Act classifies income into five distinct heads to standardise the process of income tax reporting:

• Income from Capital Gains/Loss

• Income from Business and Profession

• Income from Salary

• Income from House Property

• Income from Other Sources

Income that does not fall under the specific categories of salary, house property, business or profession, or capital gains is classified under ‘Income from Other Sources’.

Section 56 of the Income Tax Act, 1961 presents ‘Income from Other Sources’ as income which is not covered under the other specified heads of income. It also outlines the types of income that are required to be reported under this category for the purpose of tax computation.

A related section of the IT Act, 1961, is section 57. This section and its several subsections mention expenditures which are permitted as deductions for incomes which are earned as ‘Income from Other Sources’.

Interest rates that get accumulated in your bank account should be declared in your income tax return under ‘Income from Other Sources’. It is essential to note that banks generally do not deduct TDS on savings‑account interest.

Interest income from fixed deposits, recurring deposits, corporate deposits, post‑office savings accounts, and bank savings accounts is taxable and must be declared under this head.

Savings‑account interest is not tax‑free; however, eligible deductions can be claimed under Sections 80TTA or 80TTB.

Interest income earned by a resident individual (below 60 years of age) or a Hindu Undivided Family (HUF) up to ₹10,000 per financial year on interest from savings accounts can be claimed as a deduction under Section 80TTA. The deduction applies to interest earned from:

• Post‑office savings account

• Savings bank account

• Savings account with a cooperative bank

Senior citizens are not eligible under Section 80TTA and must instead claim deduction under Section 80TTB.

The interest received on fixed deposits is added to your total income and taxed at the slab rate applicable to the taxpayer. Fixed‑deposit interest is taxable on an accrual basis, even if it is not received during the financial year.

Senior citizens may claim a deduction of up to ₹50,000 under Section 80TTB on interest earned from bank and post office deposits, subject to applicable conditions under the Old Tax Regime.

Banks are required to deduct tax at source (TDS) on interest income from deposits if total interest exceeds ₹40,000 in a financial year (₹50,000 for senior citizens) across all branches of a bank.

• TDS rate: 10% with PAN, 20% without PAN
• TDS details appear in Form 26AS

If your total income is below the taxable limit, you may submit:

• Form 15G – for non‑senior residents
• Form 15H – for senior residents

These forms remain valid for one financial year and must be submitted every year to avoid TDS.

Interest earned from fixed deposits and recurring deposits is typically classified under ‘Income from Other Sources’ in accordance with the Income Tax Act.

For FY 2025–26, the ₹40,000 or ₹50,000 threshold for tax deduction at source (TDS), as applicable, is considered on the combined interest earned from both fixed deposits and recurring deposits.

Withdrawals from Public Provident Fund (PPF) and Employees’ Provident Fund (EPF) after fulfilling the prescribed conditions are exempt from tax.

Such exempt income should be reported under the ‘Exempt Income’ schedule in the ITR and not under ‘Income from Other Sources’.

EPF withdrawal is exempt only after completing five years of continuous service.

Family pension received by a legal heir is taxable under ‘Income from Other Sources’. A standard deduction is allowed equal to the lower of:

• ₹15,000, or

• One‑third of the family pension received

The balance is taxable at the applicable slab rate.

Income earned from lotteries, online games, puzzles, horse races, or betting is taxed under ‘Income from Other Sources’ at a flat rate of 30% plus applicable cess and surcharge.

No deductions or slab benefits are allowed on such income.

The following are considered taxable under Section 56 unless specifically exempted:

• Interest from bank, corporate, and post‑office deposits

• Dividend income from shares or mutual funds

• Lottery, betting, crossword, and horse‑race winnings

• Rent from plant or machinery (if not business income)

• Gifts exceeding ₹50,000 from non‑relatives

• Interest on securities

Note: Income from sale of property or securities is taxed under ‘Capital Gains’ and not under this head.

Permissible deductions include:

• Commission paid to realise dividend or interest income

• Repairs, depreciation, insurance, and maintenance expenses for let‑out plant or machinery

• Standard deduction on family pension

• 50% deduction on interest received on compensation or enhanced compensation

• Any expenditure wholly and exclusively incurred to earn such income

• Winnings from lotteries, betting, and horse races: 30% + cess
• Interest and dividend income: taxed at normal slab rates
• Gift income: taxed at slab rates (unless exempt)

Gifts of money or property exceeding ₹50,000 from non‑relatives are taxable under ‘Income from Other Sources’ at slab rates.

Exempt gifts include:

• Gifts from specified relatives

• Gifts on marriage

• Inheritance or will

If immovable property is received without or for inadequate consideration, only the difference between stamp‑duty value and actual consideration (subject to thresholds) is taxable, not the entire stamp‑duty value.

TDS under Section 194‑IA applies only to property purchases exceeding ₹50 lakh, not to gift taxation.

Total Income from Other Sources = Gross Section 56 Income – Section 57 Deductions

Taxation affects different sources of income based on applicable provisions under the Income Tax Act. Financial instruments such as Unit-Linked Insurance Plans (ULIPs) are subject to specific tax rules, including conditions under Section 10(10D), which determine the tax treatment of proceeds.

Income classified under ‘Income from Other Sources’ requires appropriate reporting and adherence to prescribed provisions while filing income tax returns.