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Income from Other Sources Notes

CA Final Advanced Auditing and Professional Ethics Important Revision Questions (PDF)

Income Under the Head “Income from Other Sources”

Where any income, profits or gains includible in the total income of an assessee, cannot be included under any of the other heads, it would be chargeable under the head ‘Income from other sources’. Hence, this head is the residuary head of income [Section 56(1)]

Specific Incomes Chargeable under Income from Other Sources [Section 56(2)]

(1) Dividend Income

(2) Casual income (winnings from lotteries, cross word puzzles, races including horse races, card games and other games, gambling, betting etc.). Such winnings are chargeable to tax at a flat rate of 30% under section 115BB and no expenditure or deduction under Chapter VIA can be allowed from such income. No loss can be set-off against such income and even the unexhausted basic exemption limit cannot be exhausted against such income.

(3) Sum of money or property received by any person [Section 56(2)(x)]

Nature of asset Particulars Taxable value
1. Money Without consideration The whole amount, if the same exceeds Rs. 50,000.
2. Movable property Without consideration The aggregate fair market value of the property, if it exceeds Rs. 50,000
3. Movable property Inadequate consideration The difference between the aggregate fair market value and the consideration, if such difference exceeds Rs. 50,000.
4. Immovable property Without consideration The stamp value of the property, if it exceeds Rs. 50,000.
5. Immovable property Inadequate consideration The difference between the stamp duty value and the consideration, if such difference exceeds the higher of Rs. 50,000 and 10% of consideration.

Receipts exempted from the applicability of section 56(2)(x)

Any sum of money or value of property received –

  1. from any relative; or
  2. on the occasion of the marriage of the individual; or
  3. under a will or by way of inheritance; or
  4. in contemplation of death of the payer or donor, as the case may be; or
  5. from any local authority; or
  6. from any fund or university or other educational institution or hospital or other medical institution or any trust or institution; or
  7. from or by any registered trust or institution
  8. by any fund or trust or institution or any university or other educational institution or any hospital or other medical institution.
  9. by way of transaction not regarded as transfer under specified clauses of section 47
  10. from an individual by a trust created or established solely for the benefit of relative of the individual.
  11. from such class of persons and subject to such conditions, as may be prescribed.

(4) Other receipts chargeable under this head

Section Provision
56(2)(viib) Consideration received in excess of FMV of shares issued by a closely held company to any person, being a resident, to be treated as income of such company, where shares are issued at a premium
56(2)(viii) Interest received on compensation/enhanced compensation deemed to be income in the year of receipt and taxable under the head “Income from Other Sources”.
56(2)(ix) Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if such sum is forfeited and the negotiations do not result in transfer of such asset.
56(2)(xi) Compensation or other payment, due to or received by any person, by whatever name called, in connection with termination of his employment or the modification of the terms and conditions relating thereto.

Deductions allowable [Section 57]

S. No. Particulars Deduction
1. In case of dividend or income in respect of units of mutual fund or income in respect of units from a specified company

Interest expenditure to earn such income.

However, such interest expenses cannot exceed 20% of such income included in total income, without deduction under this section.

2. In case of interest on securities Any reasonable sum paid by way of commission or remuneration to a banker or any other person.
3. Income consists of recovery from employees as contribution to any PF, superannuation fund etc. Amount of contribution remitted before the due date under the respective Acts, in accordance with the provisions of section 36(1)(va)
4. Income from letting on hire of machinery, plant and furniture, with or without building Current repairs to the machinery, plant, furniture or building , insurance premium, depreciation/ unabsorbed depreciation
5. Family Pension Sum equal to

  • 33 1/3% of such income or
  • Rs. 15,000,whichever is less

whichever is less

6. Interest on compensation/ enhanced compensation received 50% of such interest income

Deductions not allowable [Section 58]

S. No. Deductions not allowable
1. Any personal expense of the assessee
2. Any interest chargeable to tax under the Act which is payable outside India on which tax has not been paid or deducted at source.
3. Any payment chargeable to tax under the head “Salaries”, if it is payable outside India unless tax has been paid thereon or deducted at source.
4. Any expenditure in respect of which a payment is made to a related person, to the extent the same is considered excessive or unreasonable by the Assessing Officer, having regard to the FMV.
5. Any expenditure in respect of which a payment or aggregate payments exceeding Rs. 10,000 is made to a person in a day otherwise than by account payee cheque or draft or ECS through bank accountor through such other prescribed electronic mode such as credit card, debit card, net banking, IMPS, UPI, RTGS, NEFT, and BHIM Aadhar Pay.
6. Any expenditure or allowance in connection with income by way of earnings from lotteries, cross word puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature
7. 30% of expenditure in respect of sum which is payable to a resident on which tax is deductible at source, if such tax has not been deducted or after deduction has not been paid on or before the due date of return specified in section 139(1)

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