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Tax Planning

Income From Other Sources

Apart from several income heads that we have learned earlier, there are also a few other incomes, such as dividend income, winning from lotteries, etc. All these incomes are clubbed together and termed as Income from Other Sources. So, in this section, we will learn how these incomes from other sources are taxed. 

 

What is the section under which Income from other sources are charged?

 

Section 56 states that all those incomes which do not fall under the previous four income heads are not exempted from taxes, rather they are chargeable under the head “Income from other sources.” They are as follows: 

  • Dividend Income
  • Annuity income received or due 
  • Winnings from any game etc
  • Income received from any welfare fund
  • Rent earned from letting-out plant, machinery 
  • Sum received under Keyman insurance policy

What are deemed gifts?

Deemed gifts cover the most important part of this chapter as it helps us to understand what would be considered gifts and will be exempt under the provisions of the Act.

 

This part will be covered section-wise:

 

As per the provisions of Section 56(2)(vii) where any individual or HUF receives any sum of money or property without consideration falling under below categories and subject to the conditions mentioned therein, he/she shall be liable to tax:

  • Any amount of money received in excess of ₹50,000, the whole amount of money received shall be taxable
  • Immovable property, say Land & building
    1. Received without consideration, the stamp duty value of which is > ₹50,000
    2. Received with consideration, but the difference between the selling price and stamp duty value exceeds ₹50,000 
  • Movable property
    1. Received without consideration, the Fair Market Value (FMV) > ₹50,000
    2. Received with consideration, but the difference between the selling price and FMV exceeds ₹50,000 

Note: This clause shall not be applicable to the following:

  • Relative
  • Anything received on the occasion of marriage
  • Under a will
  • By inheritance
  • In contemplation of the death of the payer
  • Local authority
  • Fund, foundation, university, other educational institution, hospital, medical institution, any trust or institution referred therein
  • Charitable institution
  • Any transaction not regarded as transfer u/s 47.

Example: Mr. Y received a cash gift from a friend – ₹30,000. Will this be taxable?

 

Yes, friend does not fall under the definition of relative and hence, the entire amount will be taxable under the head income from other sources.

 

  • In case of dividend apart from that mentioned in Section 115-O, any income earned in the process of earning this income, say, commission, interest or remuneration,
  • In case of pension earned by legal heirs after the death of employee, a standard deduction of the lower of the following shall be allowed:
    1. ₹15,000
    2. 1/3rd of the amount received
  • In case of lease rental, deduction shall be allowed on repairs, insurance and depreciation.
  • Any expenditure except capital expenditure incurred to earn such income
  • In case of income received as compensation referred to u/s 145A(2), 50% deduction of such amount shall be allowed.

What is clubbing of income?

Generally, an individual  is taxed for the income earned by him/her and hence, pays the tax accordingly. However, there can be a situation where the other person’s income might be taken for computing income. This situation where a person’s income, including another person's income, is known as clubbing of income.

 

Example: Clubbing of minor child’s income

 

What is Gross total income?

Gross total income (GTI) refers to the total income of the assessee reduced by the deductions available under Section 80C to 80U.

Casual income refers to income earned from winning from lotteries, puzzles etc.

 

Relative under this head of income includes:

  • Spouse of the individual
  • Brother or sister of the spouse of the individual
  • Any lineal ascendant or descendant of the spouse of the individual
  • Brother or sister of the individual
  • Brother or sister of either of the parents of the individual
  • Any lineal ascendant or descendant of the individual

Property means the following capital assets:

  • Immovable property
  • Shares and securities
  • Jewellery archaeological collections
  • Drawings, paintings, sculptures
  • Bullion
  • Any work of art

The entire amount of money received from a mutual fund is exempted under the head income from other sources.

 

Personal expenses cannot be claimed under this head.

 

Agricultural land is not a capital asset and is not taxable.

 

56(2)(VIIA) deals with the receipt of shares of a closely held company by a firm or a closely held company, whether received without consideration or with an inadequate consideration.

 

Valuation date means the date on which the property or any consideration is received by the assessee.

 

Any member of the HUF is considered to be the relative.

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Units 6/10