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. To facilitate and ease the process of income tax reporting, the Income Tax Department of India has categorised five heads of income, namely:
Income from Capital Gains/Loss
Income from Business and Profession
Income from Salary
Income from House Property
Any income that does not fall under these heads is considered as ‘Income From Other Sources’.
In this article, we will explore examples of income from other sources, tax on income from other sources, and income from other sources tax rate, etc.
While filing income tax returns, you will notice that one of the heads is listed as Income from Other Sources. This includes income apart from salary, capital gains, house property, or business and profession. Mentioned below are the income from other sources examples.
Income from gambling, betting or winning races, lotteries, etc.
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 does not 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, 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 accounts
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 deductions at the time of computing income tax. However, not all of these can be considered for income tax deductions at the time of computing your taxable income. In this case, tax must mandatorily be paid on these sources of income. These include interest earned or salary received without TDS (tax deducted at source) from 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 Section 40A(3) and Section 40A(2), both of which are anti-tax evasion measures. These two sections of the Income Tax Act, 1961, disallow different types of expenditures if they are not in compliance with the 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 the tax liability must only be as per provisions mentioned among these sections.
If you have earned any money from winning the lottery, puzzle, or any online/TV game show, etc., the income is liable for income tax under ‘income from other sources’. The applicable income from other sources tax rate will be 30%. After adding cess, the tax on income from other sources becomes 31.2%.
Just as self-employed businesses and freelancers can deduct some expenses from their income, taxpayers receiving income from other sources can claim the deductions for the expenses. These deductions are mentioned below.
Remuneration or commission for realising dividend or interest on securities. If money or commissions have been paid to realise dividends, these costs may be deducted from dividend income that is taxed as income from other sources.
Expenses (not capital expenditures) like repairs, insurance premiums, and depreciation on plant, machinery, fixtures and buildings are deducted from the rental income generated by letting out of plants, machines, furniture, and buildings. Rental income from the plant and machinery is taxable under income from other sources. The expenses in respect of such plant and machinery are allowed for deduction.
A standard deduction is allowed for the family pension, i.e. the lowest deduction of ₹15,000. One-third of such income is available in case of income in the nature of family pension. It is paid monthly to the family members of the deceased employee.
If interest is accrued on compensation or additional compensation is received, 50% of the interest can be deducted. Subject to Section 57(iii), a deduction is allowed for any other expenses (other than capital expenditures) that have been spent solely and entirely to make or earn such income.
Taxation often eats away a significant portion of an individual’s earnings. As a result, investors prefer investments which ensure tax saving through 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 life insurance cover for the policyholder, thus ensuring that their dependents are taken care of even in their absence.
Investors can choose which ULIPs they wish to invest in based on their own personal requirements and risk appetite. 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 can 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 deduction but also lets investors maximise their returns by providing utmost flexibility through four different investment portfolios.
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The 5 sources of income or heads of income are income from capital gains/loss, income from business and profession, income from other sources, income from salary, income from house property.
Casual income is the income earned in a year by chance and which is less likely to happen again in future. In other words, it is a non-recurring type of income.
As per Hindu law, an HUF means a Hindu Undivided Family. It is a family that consists of all persons lineally descended from a common ancestor and also includes their wives and unmarried daughters.
Winnings from a lottery or a game show come under the ‘Income From Other Sources’ header in your Income Tax Returns.
Yes, the winnings from a lottery are taxable under the applicable rate of 30%. With cess, this income from other sources tax rate becomes 31.2%.