Table of Contents

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

  1. Dividend Income
  2. Winning from lotteries, etc.
  3. Employees’ contribution towards staff welfare scheme**
  4. Interest on securities**
  5. Rental income of machinery, plant or furniture**
  6. Composite rental income from letting out of plant, machinery, furniture and building**
  7. Sum received under Keyman insurance policy++
  8. Deemed Income of a closely held company
  9. Interest on compensation or enhanced compensation
  10. Advance money received in the course of negotiations for transfer of a capital asset which has been forfeited
  11. Deemed Income in certain cases
  12. Compensation on termination of employment or modification of terms of employment
  13. 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.

Mock Tests-

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Chapter 9: Income from other Sources

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1. Which rate is used to convert capital gains earned in foreign currency into Indian Rupees for non-resident investors in Indian company shares or debentures?

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2. Which assets are not eligible for indexation benefit?

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3. What is the formula for calculating the capital asset distributed on the liquidation of a company?

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4. In which case is the full value of consideration calculated differently?

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5. When should the cost of improvement incurred before 01-04-2001 be considered?

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6. How is the indexed cost of acquisition calculated?

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7. What is the formula for calculating the capital gains when the consideration for transfer is not ascertainable?

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8. Which rate is used to convert the sales consideration into Indian Rupees?

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9. How is the "full value of consideration" defined in the computation of capital gains?

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10. What is the formula for calculating long-term capital gain or loss?

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11. How are the capital gains computed in foreign currency converted into Indian Rupees?

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12. Which provision applies to the computation of capital gains for reinvestment in shares or debentures of an Indian company?

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13. How is the cost of acquisition converted into foreign currency?

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14. What is the conversion rate used for capital gains arising in foreign currency for resident or non-resident individuals?

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15. If the required amount for investment in a new residential house is not invested by the return filing date, what should be done with the amount?

Case Study- Mr. A purchased a house on 14th April, 2011 for Rs. 1 crore. He sold the said house in December 2020 for Rs. 3 crore. He now intends to purchase a new house for Rs.

1.5 crore. The Cost Inflation Index for financial year 2011-12 was 184 and Cost Inflation Index for FY 2020-21 was 30Answer the following questions:

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16. Does the benefit of indexation apply when converting the cost of acquisition in foreign currency?

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17. Can Mr. A avail exemption under section 54 by investing in a new residential house?

Case Study- Mr. A purchased a house on 14th April, 2011 for Rs. 1 crore. He sold the said house in December 2020 for Rs. 3 crore. He now intends to purchase a new house for Rs.

1.5 crore. The Cost Inflation Index for financial year 2011-12 was 184 and Cost Inflation Index for FY 2020-21 was 30Answer the following questions:

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18. What is deducted from the full value of consideration in the case of unquoted shares transferred for less than their fair market value?

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19. What rate is used to convert the expenditure in connection with transfer into Indian Rupees?

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20. How is the indexed cost of improvement calculated?

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21. Which year's Cost Inflation Index (CII) is used when calculating the indexed cost of acquisition?

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22. What is the definition of 'cost of improvement'?

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23. Calculate the capital gains for FY 2020-21 considering the given information.

Case Study- Mr. A purchased a house on 14th April, 2011 for Rs. 1 crore. He sold the said house in December 2020 for Rs. 3 crore. He now intends to purchase a new house for Rs.

1.5 crore. The Cost Inflation Index for financial year 2011-12 was 184 and Cost Inflation Index for FY 2020-21 was 30Answer the following questions:

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24. When does the conversion of income earned in foreign currency into Indian Rupees take place?

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25. What is the purpose of indexation in calculating capital gains?

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26. What is the time limit within which the new residential house should be acquired or constructed for the exemption to be available under section 54?

Case Study- Mr. A purchased a house on 14th April, 2011 for Rs. 1 crore. He sold the said house in December 2020 for Rs. 3 crore. He now intends to purchase a new house for Rs.

1.5 crore. The Cost Inflation Index for financial year 2011-12 was 184 and Cost Inflation Index for FY 2020-21 was 30Answer the following questions:

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27. Which expenditure is excluded from the cost of improvement?

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28. What is the benefit of indexation in calculating capital gains?

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29. Which date is considered for the conversion of capital gains from a plot of land situated in Dubai to Indian Rupees?

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30. What is deducted from the full value of consideration in the computation of long-term capital gains?

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31. What type of assets are eligible for indexation benefit?

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32. What is the formula for calculating short-term capital gain or loss?

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