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  7. Income from Other Sources: A Comprehensive Guide for ITR-1 | Tax2win

Income From Other Sources: Meaning, Exemptions and Deductions, More

Updated on: 24 May, 2023 01:32 PM

Income Tax Department bifurcates income into 5 parts:-

  • Salary
  • House property
  • Business/ profession
  • Capital gain
  • Income from other sources

Income from Other Sources refers to any income that is not derived from employment, business, or profession. It is a residual category of income that includes various types of income, such as interest on savings accounts, fixed deposits, dividends from investments, rental income, and gifts received etc. This income does not count under any of the other heads of income.

While filing income tax returns via ITR 1 taxpayers usually need clarification about what comes under income from other sources & this confusion leads to trouble. Trouble comes in the form of penalty & interest

Therefore, here we will Discuss about other sources income

Contents

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 heads. 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.

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 deduct tax at source (TDS) on the interest earned on savings account, if the interest earned exceeds Rs. 40,000 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.

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, co-operative society or a 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.

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. 40,000 per year. Senior citizens,can enjoy an income tax exemption 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, if the amount of interest earned exceeding Rs.40000 or Rs.50000 as the case may be.. Therefore, even if the interest earned on a fixed deposit is less than Rs. 40,000 per year, individuals are required to report the interest earned while filing their income tax returns.

  • Family Pension Income:
    If you are receiving any pension income on behalf of a deceased family member Then it’ll become taxable under this head. Though you can claim a deduction of Rs. 15,000 or 1/3rd of the amount received, whichever is lower.
  • Gifts Received
    Gifts are fun! I love them & you love them too. But what if that gift becomes taxable in your hands? Bad feeling na? Any gift received, if it becomes taxable then it’ll be included under head “Income from Other Sources”. Taxability of such gifts depends upon the occasion it was given or its value. For e.g. if you have received any gifts on your marriage from anyone then they are exempt from tax. On the other hand, if someone (excluding relatives) gives you a gift (on occasion other than marriage) & it’s value exceeds Rs.50,000 then it is taxable in your hands.
  • Royalty Income
    If you own some patents or have authored certain book (other than textbooks). Then any royalty income will be taxable under this head. You can claim deduction against such income u/s 80RRB & 80QQB.
    Winnings from lottery, puzzles, card games, horse races or any other game of betting/ gambling is also taxable under this head.
  • 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.

Income from Other Sources in ITR 1 Sahaj Form

While 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 tab “Computation of Income & Tax” in the field “B3: Income from Other Sources (Ensure to Fill Sch TDS2)”.

ITR 1 Sahaj Form

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

Frequently Asked Questions

Q- Under which head pension income & family pension income are taxable?

Pension income is taxable under “Income from Salary,” while family pension income is taxable under “Income from other Sources”.

Q- How to save tax on Fixed Deposits?

To save tax, make a fixed deposit with a lock-in period of 5 years. Now, claim the amount of investment as a deduction u/s 80C up to Rs.1,50,000. But note that interest from such FD is taxable as income from other sources. A person can file forms 15G and 15H also when their total income is less than the basic exemption limit. By filing it TDS will not be deducted.

Q- Do I have to show interest income in ITR 1 if TDS is already deducted?

Yes, you should disclose interest income under the head Income from Other Sources in ITR 1 irrespective of tax deduction and later claim the tax credit using Form 16A.

Q- Can I claim a deduction of expenses incurred to earn Income from Other Sources?

Yes, you can claim a deduction of such expenses provided they directly relate to such income.

Q- I received a painting as a gift. Is it taxable?

The asset includes “painting” as per Income Tax Act and If the value of such gift exceeds Rs.50,000, it will be taxable under the head Income from Other Sources.

Q- Do I have to pay tax on gifts received on the occasion of marriage?

No gifts received (whether in cash or kind) on the occasion of marriage are totally exempt from income tax.

Q- On what amount I have to pay tax if the value of the gift is more than Rs.50,000?

If you have received this gift on any occasion (other than marriage) & its value exceeds Rs.50,000. Then the whole amount will become taxable under the head Income from Other Sources.

Q- How can I file income tax returns for my winnings from online betting sites in India? Will the IT department cause issues if I declare the amount in “income from other sources”?

Winnings will be taxable under the Head of “Income From Other Sources” and will be liable to tax @30%.

Q- What are casual incomes? What is its tax treatment under the Income Tax Act?

Casual income means income that is not earned in a regular manner, such as lottery income, horse races, etc., and they are charged @30%

Q- Do I need to fill in the “income from other sources” field? A company has deducted TDS, as I was on contract. I received Form 16A. If I leave it blank, will it be fine?

It would not be appropriate to leave it blank. It is always recommended to show income in ITR whether TDS has been deducted or not.

Q- What is the tax treatment of interest earned from a joint bank account? In whose income returns should such income be reflected?

It is incorporated in that person’s return whose PAN is registered with the bank.

Q- My wife is giving home tuition and I want to show that income in an income tax return. Where should I show that? Does she need to pay GST on that amount?

If tuition income is part-time, it can be shown under Income from other sources, but if the main source of income is Tuition fee, then it will be considered as business income, and GST will be applicable whenever gross receipts cross the threshold limit.

Q- What would happen if we don't declare “income from other sources”?

The Income Tax department could issue notice to the taxpayers who fail to include the income from other sources.

Q- I received Form 16A from the bank & TDS certificate for the amount paid on interest on my Tax Saver FD (80C), while filing IT returns should I again declare this interest amount? Under the “income from other sources”?

Yes, it is liable to include income from other sources.

Q- What are the general incomes under the head income from other sources?

Income from dividends, one-time income, Interest from deposits, Income from machinery, plant or furniture, and many more which are not taxed under any other head of income.

Q- Can I deduct expenses from income from other sources?

Yes, if there is any expense incurred for earning income, it can always be deducted except income from lottery, betting and gambling.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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