The Income Tax Act has five heads of income, of which ‘Income from other sources’ (IFoS) is one. It can be treated as residual head of income as it includes such income which is outside the purview of other heads of income. IFOS includes dividends, interest income, royalty income, etc. from companies. Therefore, it is pertinent to look at the taxability on some of these incomes.
Any gift received by an employee from the employer is taxable under the head ‘Income from salary’, whereas any profit/gift/perquisite arising out of business or profession is taxable under the head ‘Profits and gains of business or profession’. Apart from these, any gift/property acquired by the taxpayer is taxable under IFoS. If a taxpayer has received any monetary gift without consideration and the aggregate fair market value (FMV) exceeds 50,000, then the entire amount is taxable as other sources. If the taxpayer has received monetary gift with insufficient consideration and if the total FMV exceeds 50,000, then the difference between the FMV and the actual return is to be declared.
In the case of immovable property, if it is received without consideration and the stamp duty value exceeds 50,000, the stamp duty value of such property shall be chargeable to tax at other sources, whereas if such property is received for a consideration which is less than the amount exceeding the stamp duty value of the property 50,000, the stamp duty value of such property which exceeds the actual consideration, will be taxable.
If such monetary gift or property is received from a relative (spouse, brother, sister or brother of the spouse, and sister of the parent of the recipient, etc.), or under any bequest or inheritance, So there will be no tax. Thoughts of death
Another popular source of income under IFoS is dividends. ‘Dividends’ means broad coverage and includes the distribution of assets to shareholders at the time of liquidation as well as any distributions due to a reduction in the share capital of the Company. Since the liability to pay tax on dividend received is on the taxpayer, the taxpayer has to declare this income under the head ‘Income from other sources’ and pay tax on it as per slab rate. In the case of Keyman insurance policy by a company for its key employees, if the amount is received by the insured, who is the key employee and is not the company, then such amount received on the maturity of the Keyman insurance policy shall be taxable under the head ‘ Income from other sources’. The taxability of interest income varies depending on the nature of the income. For example, savings bank account interest is taxable only in excess of 10,000, while interest on Public Provident Fund (PPF) is exempt and interest earned on employee’s contribution to PF account will be taxed if it exceeds 2.5 lakh in a financial year and interest earned on post office savings bank account is exempt to the extent 3,500 in case of personal account and 7,000 in case of joint account.
Any lump-sum income such as winnings from lotteries, crossword puzzles, horse racing, card games or betting of any kind is considered IFOS and taxable. Taxpayers can also claim certain other deductions under IFoS. For example, in the case of family pension, one-third of such income shall be deducted or 15,000, whichever is less, is allowed. The term ‘family pension’ means the regular monthly amount payable by the employer to a person belonging to the family of the employee in the event of death of the employee.
Taxpayer has to fill the details of IFO under Schedule OS such as gross interest income, dividend, if the amount received by way of gift exceeds 50,000, etc.
The IT Act allows set-off of capital assets and losses from business against other income in a particular year. Income under the head IFoS cannot be used to set off losses under the head ‘Capital Gains’. Income from winnings from lotteries, crossword puzzles, races (including horse racing) and any other sport or gambling of any kind or nature may also not be set off.
Amit Maheshwari is Tax Partner, AKM Global, a tax and consulting firm. Yeshu Sehgal, Head of Tax Markets, AKM Global, contributed to this article.
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.