Income From Other Sources- Do You Also Have?

Income from other sources is taxed at the applicable slab rate, as per the income tax laws. However, certain incomes may be exempt from tax or subject to a lower tax rate, as per the provisions of the Income Tax Act, 1961 (I.T. Act, 1961). It includes income that is not taxable under any other head of income such as salary, house property, capital gains, and business or profession. Some examples of income from other sources are: Interest on savings accounts, fixed deposits, recurring deposits, etc. There are various other Income from Other Sources which we will discuss in this article. They are taxed as per the applicable tax slab rates. The income tax rate for income from other sources is the same as that for the individual’s total income.

Income From Other Sources as per Section 56 of the I.T. Act, 1961

Under Section 56 of the I.T. Act, 1961, the following are the incomes that are taxable only in Income from Other Sources:

• Gifts: Any sum of money, immovable property, or movable property received without consideration or for inadequate consideration from a non-relative is taxable under this section if it exceeds Rs. 50,000 in a financial year.
• Interest Income: Any interest income earned from savings accounts, fixed deposits, recurring deposits, or any other financial instrument is taxable under this section.
• Rental Income: Any rental income earned from assets other than property, such as cars, machinery, or any other assets is taxable under this section.
• Dividend Income: Any dividend received from investments in shares and mutual funds is taxable under this section.
• Royalty Income: Any royalty income received from patents, copyrights, or any other intellectual property is taxable under this section.
• Commission or Brokerage Income: Any commission or brokerage income earned by a person is taxable under this section.
• Income from Other Sources not covered under any specific head of income: Any income that is not covered under any other specific head of income, such as salary, house property, capital gains, or business or profession, is taxable under this section.

Incomes taxable under Section 56 are taxed as per the applicable tax slab rates.

Expenditures allowed as deductions in accordance to Section 57

Section 57 of the I.T. Act, 1961, provides for the expenditures that are allowed as deductions from income chargeable under “Income from Other Sources.” The following expenditures are allowed as deductions under Section 57:

• Interest paid: Any interest paid on borrowed capital for the purpose of earning income from other sources is allowed as a deduction. The deduction is available for both personal and business purposes.
• Expenses related to earning income: Any expenses that are incurred wholly and exclusively for earning income from other sources are allowed as deductions. These may include expenses such as rent, salary, wages, repairs, and maintenance expenses.
• Bonus or commission paid to employees: Any bonus or commission paid to employees for the purpose of earning income from other sources is allowed as a deduction.
• Depreciation: If the income from other sources is derived from machinery, plant, or furniture, then depreciation on such assets is allowed as a deduction.
• Insurance Premium: Any insurance premium paid for insuring the asset from which income from other sources is derived is allowed as a deduction.
• Legal expenses: Any legal expenses incurred for the purpose of earning income from other sources are allowed as a deduction.
• That the deductions under Section 57 are subject to certain conditions and limits. The expenditure claimed as a deduction must be wholly and exclusively for the purpose of earning income from other sources, and must be supported by proper documentation and proof of payment. Additionally, the total amount of deductions claimed cannot exceed the total amount of income earned from other sources.

Sum not allowed as deductions while computing taxable income mentioned in Section 58

There is no Section 58 in the Indian Income Tax Act, 1961. However, under the Act, there are provisions that disallow certain expenses as deductions while computing taxable income. These expenses are listed under various sections of the Act. Some of the expenses that are not allowed as deductions while computing taxable income are as follows:

• Personal expenses: Any expenses that are of a personal nature, such as expenses incurred for personal grooming, entertainment, or recreation, are not allowed as deductions.
• Capital expenses: Any expenses incurred for the acquisition, construction, or improvement of a capital asset are not allowed as deductions. However, such expenses can be claimed as depreciation over a period of time.
• Expenses not related to business or profession: Any expenses that are not related to the business or profession, such as donations to political parties, are not allowed as deductions.
• Interest paid on capital: Any interest paid on capital is not allowed as a deduction while computing taxable income. However, such interest can be claimed as a deduction against the profits of the business or profession.
• Penalties and fines: Any penalties or fines imposed by the government or any statutory authority are not allowed as deductions.
• Dividend distribution tax: The dividend distribution tax paid by a company on the distribution of dividends is not allowed as a deduction.
• That the above list is not exhaustive, and there may be other expenses that are not allowed as deductions. While computing taxable income, as per the provisions of the Indian I.T. Act, 1961.

Profits Chargeable to Tax under section 59 of the I.T. Act, 1961

Section 59 of the Indian Income Tax Act, 1961, deals with the profits chargeable to tax in certain cases. It states that where any sum is received by an assessee in connection with the transfer of a capital asset, and the cost of acquisition of the asset or the fair market value of the asset as on 1st April 2001, whichever is higher, is less than the sum received, the difference between the sum received and the cost of acquisition or the fair market value. As the case may be, is chargeable to tax as income in the previous year in which the asset is transferred.

For example, if an assessee sells a property for Rs. 80 lakh, and the cost of acquisition of the property is Rs. 50 lakh, then the difference of Rs. 30 lakh will be treated as income and charged to tax in the year in which the property is transferred. That the provisions of Section 59 apply only to assets that are transferred after April 1, 2017. In addition, the fair market value of the asset as on April 1, 2001, is relevant only in the case of assets held for more than 24 months.

Takeaway

Income from other sources refers to any income that does not fall under the other heads of income. Such as salary, house property, capital gains, or business or profession. This may include income from sources such as interest on savings accounts, fixed deposits, lottery winnings, gifts, and rental income from machinery, plants, or furniture. Expenses related to earning income from other sources. Such as interest paid, expenses related to earning income, bonus or commission paid to employees, depreciation, insurance premium, and legal expenses, are allowed as deductions while computing taxable income, subject to certain conditions and limits. Additionally, the provisions of Section 59 of the Income Tax Act, 1961, specify the profits chargeable to tax in certain cases, where any sum is received by an assessee in connection with the transfer of a capital asset, and the cost of acquisition of the asset or the fair market value of the asset as on 1st April 2001, whichever is higher, is less than the sum received. Further, Income from other sources forms an important component of an individual’s taxable income. It is essential to understand the applicable tax laws and provisions to ensure compliance and avoid any penalties or legal issues.