INCOME FROM OTHER SOURCES

1. Chargeability Sec. 56 (1)

Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income tax under the head income from other sources, if it is not chargeable to income tax under any of heads specified in section 14 (item A to E.)

2. Specific income included under this head Sec. 56 (2)

Following incomes will always be chargeable under this head.

(i)      dividend;

(ii)      winning from lotteries, crossword puzzles, races including horse races, card games and other   games of any sort or from gambling or betting of any form or nature whatsoever and;

Important :

U/s 115BB above income are charged at a flat rate of 30%.

iii)         any sum received by the assessee from his employees as contribution to any provident fund or any other welfare fund for the employees provided it is not taxable under the head “Profits and gains of Business or profession”.

IMPORTANT:

As per definition given of income under Sec. 2(24) employee contribution deducted by employer in first instance is treated as income of the employer and if employer deposit such amount on or before due date, he will be allowed a deduction on the account of the same.

v)      Income by way of interest on securities provided the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(v)     Income from machinery, plant or furniture belonging to the assessee and given on hire provided the income is not chargeable to income-tax under the head “Profit and gains of business or profession”;

(vi)     Where assessee lets on hire, the machinery, plant or furniture together with building and letting of building is inseparable and the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession”.

(vii)   Any sum received under key man insurance policy provided the same is not chargeable under the        head “Profits and gians of business or profession” or under the head “Salaries”.

Important :

Key man insurance policy means a Life Insurance policy taken by a person on life of any person connected in any manner with a business. Where a premium is paid on such a policy, it can qualify for deduction as a business expenditure. Further as far as maturity proceeds of key man insurance policy is concerned, it is treated income u/s 2(24). The exemption as available u/s 10(10D) in respect of the maturity proceeds of a Life Insurance Policy is not extended to proceeds of keyman insurance policy.

 

viii)    *Recipts without consideration – any sum received where any sum of money exceeding Rs. 50,000 is received by an individual or HUF from any person on or after 1.9.2009. However this clause is not applicable for money received from relative or on occasion of marriage or under will or in contemplation of death of the payer.

  

(ix)          Any sum of money aggregate value of which exceeds Rs. 50,000 or immovable property or property other than immovable property, received by an individual or HUF without consideration or at price lower than stamp duty value or fair market value.

 

(x) Income by way of interest received on compensation or enhanced compensation refused to in section 145 A(b).

3. Other income chargeable under this HEAD:

(i)       Interest on different bank account;

(ii)      Interest from firm & company;

(iii)     Interest on delay in respect of income-tax refund;

(iv)     Income from sub-letting of a house property.

(v)      Rent of land;

(vi)     Insurance commission;

(vii)    Income from undisclosed sources;

(viii)    Family pension received by family member of deceased employee;

(ix)     Salary, commission, directories fees, perquisites etc. received from the company, if director is not an employee of the company;

(x)      Income from physical and mental work like work as invigilation during exams evaluation of answer books, income from writing of articles, royalty income from books etc.

(xi)     Payment received by way of interest on employees contribution to unrecognised provident fund at the time of retirement.

(xii)    Income from maintaing horses for horse-race.

(xiii)    Remuneration received by members of Parliament.

(xiv)   Interest on securities of foreign government.

(xv)    Agriculature Income from loand situated out of India.

(xvi)   Income from Royalty.

(xvii)   Income received after discontinuance of business.

(xviii)  Interest paid by goverenment on excess payment of advance tax.

(xix)   Casual Income.

(xx)    Director sittting fee for attending Board meeting.

(xxi)   Interest on loan.

(xxii)  Examinership fee received by teacher from an institution other than his employer.

(xxiii)    Income from granting of mining rights.

4. Method of Accounting :

Sec. 145(1) provides that income chargeable under the head income from other sources shall be computed either on due or receipt basis depending on the method of accounting regularly employed by the assessee. The assessee is also required to follow the accounting standards notified by the Central Government.

5. Taxability of Dividend :

The amount distributed by a company to its shareholder out of its profits is knwon as dividend. For Assessment Year 2005-06 dividend u/s 2(22)(a) to 2(22)(d) is exempted in the hand of shareholders. The company has to pay dividend tax @12.5% on such dividend.

According to section 2(22) “dividend” will include the following :—

(a)   Any distribution by a company to its shareholders to the extent of accumulated profit. Distribution of dividend must result in release of the assets.

 

Important :

Issue of bonus share to equity shareholders does not entail the release of assets of the company and hence shall not be deemed to be dividend.

(b)     Distribution of debentures/deposit certificate to shareholders and bonus share to preference shareholders to the extent of accumulated profit.

(c)     Distribution to shareholders on liquidation of the company to the extent of accumulated profit.

(d)     Distribution on reduction of share capital to the extent of accumulated profit.

(e)     Any payment to the extent of accumulated profit by a company, not being a company in which public are substantially interested, of any sum by way of :

(i)    to equity shareholder, holding more than 10% of voting power;

(ii)   to any concern [HUF, FIRM, AOP, BOI or a company] in which such shareholder (holding 10% voting power) is a member or a partner and in which he has a substantial interest.

(iii)   any payment by on behalf of, or for the benefit of any such shareholder (holding 10% of voting power)

Note : Substantial interest : 20% of share in profit/ 20% voting power in company.

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