Income from Other Sources
Income from other sources includes any income which is not exempt from tax and cannot be included under any other heads of income. It is chargeable to tax under the head ‘Income from Other Sources’.
Calculation of Income:
The following table shows the calculation of income taxable under this head:
Nature of Income Amount
- Dividend Income
- Winning from lotteries, etc.
- Employees’ contribution towards staff welfare scheme**
- Interest on securities**
- Rental income of machinery, plant or furniture**
- Composite rental income from letting out of plant, machinery, furniture and building**
- Sum received under Keyman insurance policy++
- Deemed Income of a closely held company
- Interest on compensation or enhanced compensation
- Advance money received in the course of negotiations for transfer of a capital asset which has been forfeited
- Deemed Income in certain cases
- Compensation on termination of employment or modification of terms of employment
- Any other income not taxable under any other head
Less: Attributable expenses
Total Income from Other Sources
** If such income is not chargeable to income-tax under the head “Profits and gains of business or profession”
++ If such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”
Income from Securities:
Income arising from securities chargeable to tax under this head includes:
a) Dividend income from securities held as an investment
b) Interest income from securities held as an investment
c) Deemed Income in certain cases specified under section 56(2)
d) Shares issued at premium by closely-held company
Interest on Securities-
| Topic | Interest on Securities |
|---|---|
| Taxability | Taxable under ‘Income from Other Sources’ |
| Meaning of Interest | – Interest on Govt. or State Govt. securities – Interest on debentures/other securities for money issued by local authorities, companies or corporations established by Central/State/Provincial Act |
| Meaning of Securities | Bonds, Debentures/Debenture stock, Security receipts, Govt. securities |
| Basis of Charge | – Computed according to the accounting method used by the assessee (mercantile or cash) – If mercantile, ICDS-IV may apply |
| Exemption | Some interest income is exempt under Section 10 of the Income-tax Act |
| Computation of Taxable Income | Gross interest from securities minus permissible deductions (collection charges, interest on loan taken to purchase securities) |
| Applicability of TDS | Tax is deducted under Section 193 of the Act; grossed up interest offered to tax depending on the rate at which tax was deducted at source |
| Taxability of Income | Profit from sale of securities held as stock-in-trade is taxable under ‘Profits and Gains of Business or Profession’, while profit from sale of securities held as investment is taxable under ‘Capital Gains’ |
| Conversion of Foreign Currency Income | Income from securities earned in foreign currency is converted into Indian Rupees at SBI telegraphic transfer buying rate on the last day of the month preceding the month in which income is due; for TDS, conversion is done on the date of tax deduction |
Rate of Tax-
| Section | Assessee | Particulars | Tax Rate |
|---|---|---|---|
| 115A | Non-resident or Foreign Co. | Interest received from Government or an Indian concern on monies borrowed or debt incurred by such Government or Indian concern in foreign currency | 20% |
| 199 | Non-resident or Foreign Co. | Interest received from notified Infrastructure Debt Fund as referred to in Section 10(47) | 5% |
| Non-resident or Foreign Co. | Interest received from an Indian Co. or business trust as specified in Section 194LC, i.e., interest in respect of monies borrowed by them in foreign currency or long-term infrastructure bonds or rupee denominated bonds. | 4% if interest is payable in respect of long-term bond or rupee denominated bonds listed on a recognised stock exchange in IFSC otherwise 5% | |
| Non-resident or Foreign Co. | Interest on rupee denominated bonds of an Indian Co. or Government Securities or municipal debt securities as referred to in Section 194LD | 5% | |
| Non-resident or Foreign Co. | Interest income distributed by business trust to its unit holders as referred to in Section 194LBA. | 5% | |
| 115AC | Non-resident | Interest on bonds of an Indian Company or Public Sector Company (PSU) purchased in foreign currency | 10% |
| 115AD | Foreign Institutional Investor | Interest on rupee denominated bonds of an Indian Company or Government Securities or municipal debt securities | 5% |
Gift of Securities-
Here’s a table summarizing the information:
| Topic | Details |
|---|---|
| Gift of Securities | |
| Tax liability | Chargeable to tax as income from other sources if received without consideration or for inadequate consideration than fair market value |
| Exemption | No tax if aggregate difference between fair market value and consideration paid does not exceed Rs. 50,000 |
| Movable property | Includes shares and securities |
| Computation of income | |
| Without consideration | Whole fair market value chargeable if aggregate fair market value exceeds Rs. 50,000 |
| Inadequate consideration | Difference between fair market value and consideration chargeable if aggregate difference exceeds Rs. 50,000 |
| Computation of fair market value | As per Rule 11UA of the Income-tax Rules, 1962 |
| Cases when income is not chargeable to tax | |
| Specified event | No tax if received on the occasion of marriage, under a will or by way of inheritance, or in contemplation of death of payer/donor |
| Status of donor/payer | No tax if received from specified relative, local authority, fund/foundation/university/educational institution/hospital/medical institution/trust/institution referred to in Section 10(23C), or trust/institution registered under Section 12A/12AA/12AB, or individual by a trust created solely for the benefit of relative of the individual |
| Definition of relative | Husband/wife, son/daughter, daughter-in-law/son-in-law, father/mother, mother-in-law, father-in-law, brother/sister (and their spouses), brother-in-law/sister-in-law (and their spouses), grandfather/grandmother, spouse’s grandfather/grandmother, grandson/granddaughter (and their spouses), great-grandson/great-granddaughter (and their spouses), great-grandfather/great-grandmother, and spouse’s great-grandfather/great-grandmother, father’s brother/sister, mother’s brother/sister |
| Not deemed as ‘relatives’ | Step-brother/sister, nephew/niece, cousins |
| Transactions not regarded as transfer | No tax if received under distribution of capital assets on partition of a HUF, transfer of capital asset by Indian holding company to its Indian wholly-owned subsidiary or vice versa (if conditions specified in Section 47(iv)/(v) are met), or transfer of capital asset in a scheme of amalgamation/demerger/business reorganization specified in various clauses of Section 47 |
Shares issued at Premium by closely-held Company:
Condition for taxability: Any excess premium received by a closely-held company from the issue of shares is chargeable to tax under income from other sources if the following conditions are satisfied: shares (equity or preference) are issued by a closely held company, the consideration for the issue of shares is received from a resident person, and the consideration received exceeds the face value and fair market value of shares. If these conditions are met, the consideration received exceeding the fair market value of the share shall be taxable in the hands of the issuer company.
Exceptions: The above provision shall not apply to tax any consideration received for the issue of shares if the consideration is received by a Venture Capital Undertaking from a Venture Capital Company or Venture Capital Fund or Category-I or Category-II Alternative Investment Fund (AIF), or if the company is an eligible start-up fulfilling conditions as prescribed in the Notification issued by the DPIIT.
Applicability of Income Computation and Disclosure Standards (ICDS):
The income taxable under the head ‘Profit and gains from business and profession’ and ‘Income from other sources’ shall be computed in accordance with the provisions of Section 56 to Section 59 and Income Computation and Disclosure Standards (ICDS). ICDS are not applicable to individual and HUFs that are not liable to audit under section 44AB. The Central Government has notified 10 ICDS which are applicable with effect from 01-04-2016. They are ICDS I: Accounting Policies, ICDS II: Valuation of inventories, ICDS III: Construction contracts, ICDS IV: Revenue Recognition, ICDS V: Tangible fixed assets, ICDS VI: Effects of change in Foreign exchange rates, ICDS VII: Government Grants, ICDS VIII: Securities, ICDS IX: Borrowing costs, and ICDS X: Provisions, Contingent liabilities and Contingent Assets.
