Income From Other Sources
Income from Other Sources plays a vital role in India’s taxation system. It refers to the income that does not fall under the other four heads of income, namely Salary, House Property, Business/Profession, and Capital Gains. Such income is taxed as per the provisions of the Income Tax Act, 1961. Heads of Income 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. 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. 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. 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. 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. What is income from other sources? Interest Income: Interest income is a common component of Income from Other Sources. It includes interest earned on savings accounts, fixed deposits, recurring deposits, and other financial instruments. The interest income is added to the taxpayer’s total income and taxed at the applicable slab rates. Rental Income: Rental income from letting out properties is another significant part of Income from Other Sources. Whether you own residential or commercial property, the rent received is subject to taxation after deducting standard deductions and municipal taxes. Dividends and Mutual Funds: Income earned from dividends and mutual funds is considered under this head. While dividends from domestic companies are tax-free, those from foreign companies are taxable. Additionally, capital gains from mutual funds are also accounted for under this category. Family Pension: Pension received by family members after the taxpayer’s demise is taxable under Income from Other Sources. The taxable amount is determined based on the pension rules and the individual’s relationship with the deceased. Lottery and Gambling Winnings: Any winnings from lotteries, card games, betting, or gambling are subject to taxation under this head. The tax rate is typically higher for such earnings, and TDS (Tax Deducted at Source) is often deducted by the payer. Gifts and Cash Prizes: Gifts and cash prizes exceeding a specified limit are treated as taxable income under Income from Other Sources. However, certain gifts from relatives and on specific occasions may be exempted. Income from Royalties: Authors, artists, and creators who receive royalties for
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