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What types of income fall under “Income from Other Sources”

The income earned from sources other than the salary is termed as income from other sources. All the incomes which are not taxed under any other category of income will fall under income from other sources and be taxed as such.

Additional earnings from the interest of savings bank accounts, fixed deposits or from a post office savings account are also taxed under income from other sources. To a certain extent, interest earned from bank savings account and post office deposits are tax-deductible. The income that is exempted from taxation also falls in this income from other sources category.

The nature in which the income is earned will determine if that income will fall beneath this head.

The income which is applicable to income from other sources are as follows:

  • Dividend Income: Income from dividend (regular payments from a company to its shareholders) is shown under income from other sources. Under section 2 (22) (e) dividend income is fully taxable for all income from co-operative societies and oversea companies. Those dividends that are exempted from taxation under section 10 (34) includes Indian companies, dividend liable to corporate dividend tax, income from UTI unit holder or income on mutual fund units.
  • Income from Winnings: Winning income includes winnings of over Rupees 10,000 from means of lotteries, races, games and all forms of gambling or betting.
  • Income from Interest received: All the amount earned from an interest in the previous year (on compensation/enhanced compensation) is taxable. Taxpayers can, however, claim 50% of this income as a deduction.
  • Profits and Gains from Business or Profession: This includes contributions made towards employee welfare fund, income from interest on securities, income from renting furniture, plant, and machinery or Keyman insurance policy.
  • Income received as Gifts: This is applicable to monetary as well as non-monetary gifts received. Non-monetary gifts may include immovable property and movable property too.

Allowable Deductions under Income from other Sources

Under Income from other Sources, the following deductions are available:

  • For income earned from taxable dividend and interest from securities, any lump sum amount paid as a part of remuneration or commission is used for investing in shares or securities.
  • If income is earned from renting or for hiring-out plant, machinery or furniture, under this income

    you can avail deduction on the following expenses:

    • On-going repair works of the building.
    • On-going repair work of the machinery, plant or furniture.
    • Insurance premium paid for insuring the maintenance of plant, machinery, building or furniture.
  • For any expenditures incurred (apart from the capital expenditure or personal expenditure) in order to earn income from revenue expenditure, exemption or deduction on tax can be availed.
  • Family pension received by a legal heir of the employee avails a standard deduction of 1/3rd of the total amount or Rupees 15,000 (depending on whichever is less).
  • All the dividend from the non-domestic company are taxable and the amount which was utilized in acquiring this dividend is eligible for tax deduction.

Conditions under which Deductions are not Allowed on Income from other Sources

Under Section 58, there are certain conditions against which deductions cannot be availed on the income from other sources:

  • Personal expenses incurred by the taxpayer.
  • Interests which are payable outside of India for income tax which has not been deducted at source.
  • Any amount paid on the account of wealth tax in India or in a foreign country.
  • An expenditure made from the income amount of lottery winnings, horse race, car race, gambling, betting of any form etc.

Deduction on Income Earned through Interest as per Section 80TTA

Under Section 80TTA tax deduction of up to Rupees 10,000 is available on the interest income from bank savings account. The income from interests earned for post office deposits for individual taxpayers is exempted at an amount of up to Rupees 3,500.

Tax Calculation on Fixed Deposits

Any income from fixed deposit interest will be added to other earnings you have (such as salary or professional income) upon which taxation will be imposed at a rate applicable to you.

Although you haven’t withdrawn the interest earned,Tax Deducted at Source (TDS) is made on the interest income. For example, the bank will make TDS on the interest accrued each year on the Fixed Deposit for 10 years. This is the reason why taxpayers are advised to pay their taxes annually so that there will not be a huge tax compounded when the Fixed Deposit matures.

Situations under which Tax Deduction at Source on Fixed Deposits can be Avoided

As per the taxation law, banks must deduct taxes on the interest income when the collective amount of the deposits is more than Rupee 10,000 in a year. A rate of 10% on TDS is made if PAN details are available but if your bank doesn’t have your PAN details then 20% of TDS is made. To cross-check the digits deducted against TDS from your fixed deposit interest, you can take the help of Form 26AS.

Individuals whose total income is below the taxable limit can avoid taxation on fixed deposits by submitting Form 15G or Form 15H to their respective banks and requesting the banks not to cut any TDS. Senior citizens (60 years and older) must file Form 15H, as for everyone else Form 15G must be filed.

Keys Characteristics of Form 15G and 15H:

  • The forms are applicable only for Indian residents whose taxes add up to zero.
  • Applicants must file these forms and submit it at the start of a financial year.
  • If you have missed the due date for the form submission then the refund can be claimed by filing income tax return.
  • Both Form 15G and 15H are valid only for one year. Hence, they must be submitted annually.

According to the Income Tax Act, any income which does not fall under the banner of total income will be imposed income tax under Income from other sources. The income which does not become applicable for taxation under any head automatically falls into the taxation policy of income from other sources. Income from other sources covers all income apart from salary income, house property, business/profession income and profits from the capital.