There are five heads of income listed in the Income Tax Act, the fifth of which is Income from Other Sources.

Any income that is not eligible for tax under any other head of income and cannot be excluded from the total income is taxed as residual income under the head "Income from Other Sources".

How do you classify income from other sources?

The following three conditions must be satisfied according to Section 56 of the Income Tax Act for an income to qualify as income from other sources.

• Income is generated.

• Any other provision of the Income Tax Act does not exempt such income.

• Income from such sources cannot be claimed as salary, house property income, profits and gains from business or profession, or capital gains.

Section 56- Table Incomes under ‘Income from Other Sources’

Here’s a list of taxable income under the head “Income from other sources”:

Dividends

Depending on the company's residential status, dividends are subject to taxation as income from other sources.

• Dividend from an Indian company: The dividend is tax-free if the company has paid Dividend Distribution Tax. Under section 115BBDA of the income tax act, however, if an individual/HUF/firm receives dividends from Indian companies that exceed ₹ 10 lakh, the excess is taxable at 10%.

• Dividend from a foreign company: Dividends received from foreign companies are taxed as income from other sources.

One-time Income

A one-time income such as winnings from lotteries, crossword puzzles, horse races, card games, or betting of any kind is considered income from other sources.

Interest on compensation

In situations like compulsory acquisition, taxpayers may be taxed on interest received on compensation or reimbursements received.

Gifts

Gifts such as any sum of money and movable or immovable property that’s received without consideration which exceeds ₹50,000 are taxable.

However, any sum of money or value of property received, in the following circumstances would be tax free:

• From any relative; or

• On the occasion of the marriage of the individual; or

• Under a will or by way of inheritance; or

• In contemplation of death of the payer or donor, as the case may be; or

• From any local authority; or

• From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution; or

• From or by any trust or institution registered; or

• By any fund or trust or institution or any university or other educational institution or any hospital or other medical institution.

• By way of transaction not regarded as transfer under section 47(i)/(iv)/(v)/(vi)/(vib)/(vid)/(vii).

Meaning of certain terms:

Property

A capital asset of the taxpayer, namely,-

• immovable property being land or building or both,

• shares and securities,

• jewelry,

• archaeological collections,

• drawings,

• paintings,

• sculptures,

• any work of art or

• Bullion (bars of gold or silver)

Relative

(a) In case of an individual –

• spouse of the individual;

• brother or sister of the individual;

• brother or sister of the spouse of the individual;

• brother or sister of either of the parents of the individual;

• any lineal ascendant or descendant of the individual;

• any lineal ascendant or descendant of the spouse of the individual;

• spouse of any of the persons referred in (1) to (6) above.

(b) In case of Hindu Undivided Family, any member thereof.

Shares received by a firm

When shares of a closely held company are received by a firm or another closely held company without consideration or for inadequate consideration, the aggregate fair market value of those shares, decreased by the consideration paid, if any, shall be taxed.

Note: Nothing will be taxed if the taxable amount does not exceed ₹ 50,000.

Money or movable/immovable property received

Received money or movable/immovable property without consideration or with inadequate consideration in the previous year.

Compensation

When a person receives compensation in connection with the termination of his employment or the modification of his terms and conditions.

Under this head, money received as an advance or otherwise in the course of negotiations for the transfer of a capital asset will be taxed, if:

• This amount is forfeited; and

• As a result of the negotiations, the capital asset is not transferred.

The following receipts are classified as income from other sources only if they’re not chargeable as “profits and gains of business or profession.”

1. Employees’ contribution to welfare schemes
2. Interest on securities like government bonds or debentures
3. Rental income from letting out plant, machinery, or furniture owned by the assessee
4. Rental income from letting out plant, machinery, or furniture, along with a building, where these two cases of letting out are inseparable
5. Receipts under Keyman Insurance Policy

Examples of Incomes Chargeable as ‘Income from Other Sources’

Here are some examples of other receipts that automatically fall under this category.

• Income from subletting of a house property by a tenant

• Casual income

• Insurance commissions received by the assessee

• Family pension payments received by the legal heirs of dead employees

• Interest on bank deposits and deposits with companies

• Interest on loans given

• Remuneration received by Members of Parliament

• Rent earned from a vacant plot of land

• Agricultural income from agricultural land situated outside India

• Interest paid by the Government on excess payment of advance tax

Section 57- Expenditures allowed as deductions

The following expenses are allowable as deductions from income chargeable to tax under ‘Income from Other Sources’:

Section 58- Sum not allowed as deductions while computing taxable income