Income From Other Sources: Meaning, Exemptions, Deductions & Examples

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Heads of Income

Under the Income Tax Act, a taxpayer's earnings or income are categorized into five heads, and it is essential to correctly classify the income under these heads for accurate tax calculation. The five heads of income are as follows:

• Income from Salary: This includes earnings from employment, such as basic salary, allowances, bonuses, commissions, and any other benefits received from an employer.
• Income from House Property: This head includes income generated from owning and renting out a house property, whether residential or commercial. Rental income and deemed rental income from self-occupied properties are considered under this head.
• Income from Business or Profession: This head includes income earned from running a business or carrying out a profession, such as consulting, freelancing, or any trade-related activities.
• Income from Capital Gains: Capital gains arise when there is a profit or loss from the sale of capital assets like property, stocks, mutual funds, or other investments.
• Income from Other Sources: This head encompasses all residual income sources that do not fall under the other four heads. It includes interest income, dividends, lottery winnings, and any other income not covered elsewhere.

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What is Income from Other Sources?

According to section 56(1) of the Income Tax (IT) Act, 1961, Income from other sources includes all income you earn from other sources. In simple words, if any income can not be declared under any other income head. it will come under this head. Income from Other Sources is a category of income that includes all types of income that cannot be classified under any other head of income, such as salary, house property, business or profession, and capital gain.

Some common examples of income from other sources are:

• Interest earned on the savings account, fixed deposits, recurring deposits, and other financial instruments
• Rental income earned from a property owned by an individual
• Dividend income earned from shares and mutual funds
• Income earned from winning lotteries, races, card games, other games like gambling or betting.
• Income earned from letting out machinery or equipment
• Any gift received that exceeds Rs. 50,000 in a financial year.

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Examples of Income from Other Sources

Income from Other Sources includes various types of earnings that do not fall under the other four heads of income (i.e., Salary, House Property, Business or Profession, and Capital Gains). Here are some examples of income that are categorized under "Income from Other Sources":

• Interest Income: Interest earned on savings accounts, fixed deposits, recurring deposits, and other bank deposits is considered income from other sources.
• Dividend Income: Dividends received from investments in shares of companies are classified as income from other sources.
• Rental Income from Machinery, Plant, or Furniture: If you rent out machinery, plant, or furniture, the rental income is categorized under this head.
• Winning from Lotteries, Crossword Puzzles, and Game Shows: Income from lottery winnings, crossword puzzles, and game shows is considered as income from other sources.
• Gifts and Cash Prizes: Gifts or cash prizes received on special occasions or events are considered as income from other sources.
• Royalty Income: Income received as royalty for granting the use of intellectual property like copyrights, patents, or trademarks is categorized as income from other sources.
• Family Pension: Pension received by the family members of a deceased employee is treated as income from other sources.
• Interest on Tax Refunds: Interest received on tax refunds from the Income Tax Department is also considered income from other sources.
• Commission or Brokerage Income: Commission or brokerage received for providing services or facilitating transactions is categorized under this head.
• Annuity Income: Periodic payments received from annuity plans or insurance policies are considered as income from other sources.

Exempt Income

The PPF and EPF withdrawn are exempt from tax. However, you still need to file ITR and report this income under the head ‘income from other sources.’ Once filed, you can also check your ITR status online.

Family Pension

If you are collecting a pension on behalf of any deceased person, then you have to show it under the head ‘income from other sources’. The Family Pension Income will have a deduction of either Rs 15,000 or one-third of the received pension, whichever is lesser. This amount will be included in the taxpayer's income and taxed at the applicable rate.

Tax on Lottery Winnings, Puzzles and Game Shows

Money received from winning the lottery, online/TV game shows, races (including horse races), card games, gambling, betting, etc., is taxable under "Income from Other Sources." This income is subject to a flat tax rate of 30%, which, after including cess, totals 31.2%.

Dividend Income

Dividends received from investments, such as stocks, are taxed under the category of "Income from Other Sources." Following the recent elimination of the Dividend Distribution Tax (DDT), individuals receiving dividends are now required to incorporate them into their overall income and pay taxes based on their respective slab rates.

Taxpayers can deduct interest expenses up to 20% of the dividend income. Additionally, if the total dividend amount exceeds Rs 5,000, the company deducts TDS at a rate of 10% during the dividend payment process.

Agriculture Income

According to Income-tax regulations, agricultural income encompasses three primary activities:

• Rent or revenue earned from agricultural land located in India.
• Income generated from agricultural activities, including land cultivation, tilling, seed sowing, planting, and subsequent operations aimed at making the product market-ready, such as tending, pruning, cutting, harvesting, etc. This definition also includes income from saplings or seedlings grown in a nursery.
• Income derived from farm buildings necessary for agricultural operations.

Virtual Digital Assets (VDA)

A virtual digital asset, or VDA, refers to cryptocurrencies, NFTs, and similar digital assets. Any gains or losses resulting from the sale of VDAs are subject to income tax at a rate of 30%, subject to conditions regarding the offset of losses against other incomes.

Income from Gifts

Taxation on gifts is governed by section 56(2)(vi) of the Income Tax Act. If you receive a gift, whether with or without consideration, exceeding Rs 50,000 in a financial year, it will be taxed according to your income tax slab.

Cash gifts exceeding Rs 50,000 are taxable.

Gifts received in kind, without any consideration, are also taxable if the fair market value of such gifts exceeds Rs 50,000. The aggregate value of such gifts will be taxable in the hands of the individual receiving them.

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Savings Account

Interest earned on a savings account is a common type of income under the head 'Income from Other Sources'. This income is taxable as per the income tax slab rates applicable to the individual. It is important to note that the bank or financial institution where the savings account is held deducts tax at source (TDS) on the interest earned on the savings account if the interest earned exceeds Rs.5,000 for individuals and Rs. 40,000 for senior citizens per year.

Individuals are required to report the interest earned on their savings account while filing their income tax returns. The interest earned on a savings account can be easily calculated by referring to the bank statement or by checking the passbook entries.

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Deduction on Interest Income Under Section 80TTA

Individuals can claim a deduction on the interest income earned from savings accounts under section 80TTA of the Income Tax Act.

The deduction under section 80TTA is available for interest earned on savings accounts held with a bank, cooperative society, or post office. The maximum deduction that can be claimed under this section is Rs. 10,000 in a financial year.

If the interest earned on the savings account exceeds Rs. 10,000 in a financial year, then the excess amount will be considered as taxable income under the head 'Income from Other Sources'. It is important to note that the deduction under section 80TTA is not available on interest earned on fixed deposits, recurring deposits, or any other type of deposits.

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Tax on Fixed Deposits

Interest earned on fixed deposits is considered as income under the head 'Income from Other Sources' and is taxable as per the individual's income tax slab rate. The bank or financial institution where the fixed deposit is held deducts tax at source (TDS) on the interest earned on fixed deposits if the interest earned exceeds Rs. 5000 (for individuals) and Rs.40,000 (for senior citizens) per year. Senior citizens can enjoy an income tax exemption of upto Rs 50,000 on the interest income they receive from fixed deposits with banks, post offices, etc., under Section 80TTB.

It is important to note that TDS is deducted on the total interest earned on fixed deposits during the year exceeds the specified threshold. However, even if the interest earned on a fixed deposit is less than the specified threshold individuals are required to report the interest earned while filing their income tax returns before the last date to file ITR.

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Avoiding TDS on Fixed Deposits

Avoiding TDS (Tax Deducted at Source) on fixed deposits can be challenging, as banks are required to deduct TDS on interest income if it exceeds a certain threshold. However, there are a few strategies you can consider to minimize the impact of TDS on your fixed deposits:

• Submit Form 15G/15H: If you are below the taxable income threshold, you can submit Form 15G (for individuals below 60 years of age) or Form 15H (for senior citizens above 60 years) to the bank. These forms declare that your total income is below the taxable limit, and the bank will not deduct TDS on your fixed deposit interest.
• Distribute Investments Across Banks: Each bank applies TDS separately on the fixed deposit interest. By distributing your fixed deposits across different banks, you can stay below the TDS threshold for each bank and avoid TDS on your interest income.
• Opt for Cumulative Fixed Deposits: Instead of opting for regular fixed deposits with periodic interest payouts, consider choosing cumulative fixed deposits. In cumulative fixed deposits, the interest is reinvested, and you receive the entire interest amount along with the principal at maturity. This helps defer the TDS liability until the maturity date.
• Invest in Tax-Free Bonds: If you are looking for fixed-income investments with no TDS, consider investing in tax-free bonds issued by certain government entities. The interest income from these bonds is tax-free, and there is no TDS deduction.
• Invest in Tax-Saving Fixed Deposits: Under Section 80C of the Income Tax Act, you can invest in tax-saving fixed deposits offered by banks for a lock-in period of five years. The interest earned is eligible for a deduction up to Rs. 1.5 lakh and there is no TDS deduction.
• Plan Your Interest Payouts: If you have multiple fixed deposits, consider staggering the interest payout dates to keep the income below the TDS threshold in each financial year.

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Alternative Classification on income From Other Sources

• Any contribution to a fund for the welfare of employees received by the employer.
• Income received by way of interest on securities.
• Income from letting out or hiring of plant, machinery or furniture.
• Income from letting out of the plant, machinery or furniture along with building, in a circumstance wherein the lettings are inseparable.
• Money received under a Keyman Insurance Policy, including bonus.

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Income from Other Sources in ITR 1 Sahaj Form

While e filing ITR 1 online, you’ll have to disclose all the income from other sources as a total amount. As shown in the screenshot below, this disclosure has to be made under the tab “Computation of Income & Tax” in the field “B3: Income from Other Sources (Ensure to Fill Sch TDS2)”.

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How to Compute the Net Earnings Under the Income from Other Sources?

The net earnings under the head 'Income from Other Sources' in income tax are calculated as follows:

Gross Income from Other Sources-Deductions allowed under Section 57= Net Income from Other Sources.

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Reporting Fixed Deposit and Recurring Deposits in Your Tax Return

Interest earned on fixed deposits and recurring deposits is considered as income under the head 'Income from Other Sources' and is taxable as per the individual's income tax slab rate. Therefore, individuals are required to report the interest income earned from fixed deposits and recurring deposits while filing their income tax returns.

In order to report the interest earned on fixed deposits and recurring deposits in the income tax return, individuals need to calculate the total interest earned from these deposits during the financial year. This can be done by referring to the interest certificate provided by the bank or financial institution where the deposit is held.

Once the total interest earned is calculated, individuals can report it in the income tax return under the head 'Income from Other Sources'. It is important to note that the total interest earned on fixed deposits and recurring deposits is added to the individual's total income and taxed as per the applicable income tax slab rate.

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How to Report Interest on Your Tax Return from Fixed and Recurring Deposits

For fixed deposits, if you have three FDs open, then add up all the interest income and enter it under ‘Other interest income’.

For recurring deposits, when interest income from all the branches of the bank including from recurring deposits, exceeds Rs.40,000 (Rs.50,000 for senior citizens) in a financial year, a 10% tax on interest earned will be deducted. The interest earned should be shown in ‘income from other sources'.

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Tax Deduction That are NOT Allowed

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