Income from other sources: Types, Allowable Deductions, Taxation & Rates

Income from other sources Types, Allowable Deductions, Taxation & Rates

Incomes which won’t fall in the specific categories of salary, profession, business, house property, capital gains are generally referred as income from other sources by the taxation laws. Incomes from other sources is a sort of residual category that consists of various income sources that won’t fit into the defined incomes categories.

How is Income from Other Sources Taxed in India?

Incomes that are subjected to tax within India as per Income Tax Act, 1961, incomes from other sources is integral part of five heads of income within it. Any income which is not taken into account by any of the above four heads of incomes are taxed under income from other sources. In general income from other sources is referred to as residuary head of income. As incomes that  are excluded from heads like house property, salary, profession, business or any other capital gains are covered in such as per the Income Tax Law in India.

Section 56: Incomes Taxable Only in Income from Other Sources – Criteria

As per section 56 of Income Tax Act there are three conditions which are required to be satisfied in order to tax such income under income from other sources head. Such conditions includes-

  • It is a source of income
  • Such income source is not exempted by any of the other sections under Income Tax Act 1961.
  • The income considered must not be the integral part of any of these heads profits, salary, capital gain, or gain in business or profession, and house property gains

What does ‘Income from Other Sources’ Include?

The receipts or types of incomes which fall under the category of income from other sources or types of income from other sources are as follows

1. Dividends

Depending on the residential status of the income source (Company) that pays out such dividends , dividends are considered as part of income from other sources and are taxable under this head.

2. Dividend from an Indian Company

In case any of the company has indulged itself in payment of Dividend Distribution Tax (or DDT) on dividend, such receipt of income in such case is exempted from tax. However if an Indian company pays out a dividend to an individual, HUF, Firm of over Rs 10 lakhs, then the amount exceeded over such Rs 10 lakhs is subject to tax at the rate of 10% as per section 115BBDA of the Income Tax Act.

3. Dividend from a Foreign Company

In case any individual receives a dividend from any of the foreign companies, such receipt of income is taxed under income from other sources as per Indian Income Tax Act.

4. One-time Income

One-time incomes are those that are generally received by lotteries, winning games, gambling horse races, betting or crossword puzzles. Such incomes are also taxed under Income from other sources head.

5. Interest on Compensation

Interest which is received on compensation paid or on amount of reimbursement (As assessed) in circumstances such as acquisition on permanent basis or compulsorily, such interest  are taxed under the income head of ‘income from other sources’.

6. Gifts

Any sum of money, immovable or movable property that are received in the form of gift are taxed under this head of income.

In addition to these types of incomes that are taxed under income from other sources head, there are also certain receipts of incomes that could be taxed under this head in case they are not chargeable as Gains or profits from profession or business. This includes-

  • Contribution of employee in any of the welfare scheme
  • Interest received on government bonds, debentures or any such other securities
  • Incomes of rent received by letting out furniture, plant or machinery owned by an assessee.
  • Incomes received under the policy of Keyman Insurance Policy

Examples of Receipts that are Chargeable Under ‘Income from Other Sources’

Here are some of the examples to understand better what receipts are taxed under income from other sources head. Such as-

  • Interest on loans
  • Casual income
  • Members of Parliament (MP) paid out remuneration
  • Lawful heirs of dead employees, providing the Family pension payments
  • Received income from subletting a house property by a tenant
  • Insurance commissions received by assesse
  • Interest which is earned by bank deposits or deposits with companies
  • Interest paid out by the Government on excess payment of advance tax
  • Rental income earned from a vacant plot of land
  • Agricultural income received from an agricultural land situated outside of India

Section 57- Tax deduction India

As per section 57 of Income Tax Act there are some of the expenditures which are subjected to tax deduction under the category of ‘Income from Other Sources’. These tax deduction India includes:

Section 57(i)

Interest which is earned on securities or dividend- As a reasonable sum which is paid as remuneration or commission to any of the individual or a banker to realise dividend or interest on such securities is subject to tax deduction.

Section 57(ia)

Employee’s contribution towards Superannuation Fund (SF), Provident Fund (PF), or ESI Fund which is setup for employees’ welfare- Before or on the due date in case contribution made by employees is credited to their respective bank accounts in a relevant fund is subject to tax deduction.

Section 57(ii)

Income which is received from renting out furniture, plant or machinery or a building are subject to tax deduction such as taxes, rates, rents, insurance, depreciation etc.

Section 57(iia)

A maximum amount of family pension say Rs. 15,000 or one third of the family pension whichever is less are subject to tax deduction.

Section 57(iii)

Section 57 third part includes any other income apart from capital expenditure expended exclusively and wholly for earning purpose of such income are subject to tax deduction.

Section 57 (iv)

50 % of the Interest received on enhanced compensation or compensation are subject to tax deduction (subject to specific conditions).

Section 58(4) Proviso

Income by any of the activity associated with owning or maintaining the horses, expenditure made against such are all subject to tax deduction

Income from other sources: Applicable tax rates

Different taxation is applicable to income from other sources depending on the type of income.

Tax on income from dividend

The dividend which an individual gets from investments in mutual funds, shares, etc., will be taxable according to the applicable tax slabs in the pertinent financial year.

Taxation of one-time income

In addition to the applicable cess, income which an individual obtained through winning horse races, lottery, and other relevant forms of betting will be taxed at 30%. This tax rate is appropriate disregarding the Income Tax Slab of the person who is paying tax.

Taxation of gifts

In accordance with Income Tax Act, the definition of gift is termed as to money, any movable or immovable property such as land and all the types of assets that are acquired without consideration, that is, by paying the amount that is less than the market price, that is without any money in exchange.

In some cases the gifts are exempted from tax. These include, gifts received on someone’s marriage, assets or money acquired through inheritance via will, gifts or money that the relatives give out of love, etc. Gifts that have a fair market value that is less than Rs. 50000 are exempted from tax in accordance with the current taxation laws.

Taxation of giftsaTaxation on income that is generated from sale of property

Tax on transaction on property concerning any movable, or immovable property for instance land will be assessed in addition to stamp duty fees. If an immovable property is gifted without any fair consideration then the full stamp stamp duty charges will be taxable. If the property that is acquired through fair consideration, and the duty on stamp is above Rs. 50000 or 10%, then as per the buyer’s income the stamp duty becomes taxable. Such transactions will also be subject to TDS on property.

Income from other sources: Tax exemptions

When filing Income Tax Returns different income sources will be allowed for tax deductions. In case of income from other sources tax deductions are allowed on several expenses, as described below:

  • Remunerations or commissions which an individual receives for realising interest on dividends and securities.
  • Expenses that are relevant to depreciation on plant, machines, repair, fixtures, and insurance premium qualify for tax deduction from income.
  • Family pension is subject to standard deduction of 15000 or 1/3rd of such income whichever is less.
  • Deduction of up to 50% is allowed in case of interest on additional compensation or compensation in accordance with the existing rules.


Efficient tax management is heavily dependent on comprehending the various streams of income. The ability to identify permissible deductions is key to reducing tax obligations whilst increasing savings. To maintain compliance with the most recent tax laws and rates, it’s crucial to stay informed. By adopting these practices into your financial planning, you can make well-informed choices regarding other income streams and optimize your earning potential.

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