Income from Other Sources – Taxability of Residuary Income Under Section 56

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  • Last Updated on 11 May, 2021
The Income-tax Act, 1961 provides for taxability of income under five heads. Out of the five heads, four heads provide for taxability of specific incomes, i.e., income from salary, income from house property, income from capital gains and income from business or profession. All other incomes which do not fall within any of these heads will fall under the fifth head of income, i.e., Income from other sources.
 
Income from other sources is a residuary head of income and sweeps in all such incomes which fall outside the purview of specific heads. 

The Following incomes are covered under the head from other sources: 

1. Dividend:

Dividends usually refer to the distribution of profits by a company to its shareholders. However, under the Income-tax Act, dividend also includes distribution on liquidation of the company, reduction of share capital, and any loan or advance given by a closely held company to its shareholder.

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2. Income from Lottery, Crossword Puzzle, and Horse Race winnings:

This includes any winnings 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.

Also Read : Winnings from Online games! Might have to pay higher tax

3. Employee’s Contribution to Welfare Fund:

The contribution received by the employer from the employee regarding EPF, ESI, or superannuation fund, if not deposited to the employees account under relevant fund on or before the due date under the relevant law then the same income is taxable under other sources if it is not taxable as business income.

4. Interest on Securities:

The income earned in the nature of interest on securities such as debentures, bonds, Government securities is taxable in the hands of the assessee under the head ‘income from other sources. However, if the assessee is engaged in the business of trading of securities then the same shall be taxable as business income.

5. Income from Letting out of Machinery, plant or Furniture:

Income earned from letting out of machinery, plant, or furniture belonging to the assessee shall be taxable under the head “Income from other sources”. Further, if an assessee lets outbuilding along with these assets and letting out of the building is inseparable, then the income earned from letting out of building shall also be taxable as income from other sources. However, if the assessee is engaged in the business of letting out of such assets then the same shall be taxable as business income. 

6. Sum Received under Keyman Insurance Policy:

Any sum received under ‘keyman insurance policy’ including the sum allocated by way of bonus on such policy is treated as income from ‘other sources, provided the same is not taxable under the head “profits and gains of business or profession” or under the head “salaries”.

7. Share Premium ( Angel Tax ):

If a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares is taxable as income from the other sources. 

8. Income on Compensation or Enhanced Compensation:

Income by way of interest received on compensation or on enhanced compensation is taxable under the head of other sources in the year of receipt. 

9. Advance Money Forfeited:

Advance money received by the assessee during the course of negotiations done for the purpose of transfer of a capital asset is taxable under the head ‘income from other sources’ if such advance is forfeited because the negotiations did not result in the transfer of the asset.

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10. Taxability of Gifts:

Any sum of money or property, whether movable or immovable, received without consideration or for inadequate consideration is taxable under the head ‘income from other sources’. However, gifts received from certain persons shall not be chargeable to tax such as gifts received from relatives.

11. Compensation on Termination of Employment:

Any compensation or other payment, due to or received by any person, by whatever name called, in connection with the termination of his employment or the modification of the terms and conditions relating thereto is taxable as income from other sources.    

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