Income tax is the most direct form of tax applicable on Indian citizens and is paid by individuals in accordance with the income they earn which falls under certain income tax slabs as decided by the government. However, apart from salary, many people also earn income from a variety of other sources. These components are then taxed according to provisions applicable for income from other sources.
While filing income tax returns, you will notice that one of the heads is listed as Income from Other Sources. This includes the income generated aside from the income included under the salary, capital gains, house property or business & profession heads. However, this will not include the income that is applicable for income tax deductions under the Income Tax Act, 1961. Read on to learn about the different instruments whose income is taxable as ‘Income from Other Sources’.
Income from gambling, betting, winning races including in horse racing activities, winning crossword puzzles and lotteries
Income generated as money or in the form of movable or immovable property which was not considered or inadequate consideration was made in the previous year
Interest received on compensation or as enhanced compensation
In cases of transfer of a capital asset, if the money is forfeited and doesn’t result in asset transfers, the advance money that is received or the money that is received in negotiation
Other sources of income are also taxable under the income from other sources head, but this is only applicable if they are not taxable under Profits and Gains of Business or Profession. These can include:
If the employee has contributed funds to the respective employer for payment towards provident funds or ESI, but these funds have not been deposited into the respective funds
The interest received through securities
Income that is received from the rental of a plant, machinery or even furniture, either with the building or without it
As previously noted, several sources of income allow for income tax deductions at the time of computing income tax. However, many of these incomes cannot be subject to income tax deductions at the time of computing taxable income. Thus, tax has to mandatorily be paid on these sources of income. These include personal expenditure, any interest or even salary that is payable without TDS (Tax deducted at source) deductions outside India, expenditure related to winning of lotteries, races and through gambling. Even expenses that fall within the purview of Section 40A are not applicable for tax deductions, and must compulsorily be paid.
Section 40A includes within it Section 40A(3) and Section 40A(2) both of which are anti-tax evasion measures. These two sections of the Income Tax Act disallow different types of expenditures if they are not in compliance with the Income Tax Act’s guidelines. Both sections are overriding in their scope and if any other allowances or expenditure falls within the purview of other sections of the Income Tax Act, their treatment in terms of tax liability must only be as per provisions mentioned among these sections.
Taxation often cuts away at a significant portion of an individual’s earnings. As a result, investors prefer to invest in investments where tax savings can be ensured through maximum tax deductions. In recent times, Unit Linked Investment Plans (ULIPs) have emerged as a top choice among investors looking to supplement their income from other sources. ULIPs not only help investors create significant wealth for achieving their goals but also provide insurance cover for the policyholder which ensures that their dependents are taken care of even if they are no longer around. Investors can choose which ULIPs they wish to invest in, based on their own personal requirements and degree of risk aversion. For instance, investors with a high amount of risk aversion can choose to invest in debt-based securities which provide lower returns as compared to equity-based investments but are more secure in nature. Alternatively, investors who are more comfortable with taking risks choose to invest in a mix of equity and debt securities with expectations of higher returns.
Bajaj Allianz ULIPs available on Finserv MARKETS are a viable option for those looking to invest in such instruments. With Bajaj Allianz ULIPs, you can invest across securities without having to pay any allocation fees. This investment is not only applicable for income tax deductions, but also lets investors maximize their returns by providing utmost flexibility in the form of 4 different investment portfolios.
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