Income from Other Sources – Meaning & Coverage
Earned ₹50,000 from FD interest, ₹20,000 gift from friend, ₹10,000 lottery - where do they go? Income from Other Sources! The catch-all income head.
What is Income from Other Sources?
Section 56: Residual income head - any income NOT falling under other 4 heads
"Dustbin" head: Whatever doesn't fit elsewhere → Other Sources!
The 5 Income Heads Recap
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Two Categories under Section 56
Section 56(1) - General Clause
Any income of whatever nature, if not covered by heads 1-4 → Other Sources
Examples:
- Interest income (bank FD, savings account, bonds)
- Dividend income (from shares)
- Rental income from plant/machinery/furniture (not building)
- Family pension
- Directors' sitting fees
- Commission/brokerage (not as business)
Section 56(2) - Specific Inclusions
Specifically mentioned incomes:
- Gifts exceeding ₹50,000
- Dividends (from companies)
- Income from subletting
- Lottery/crossword/race winnings
- Interest on securities
- Income from letting of machinery/plant
Major Incomes under Other Sources
1. Interest Income
Most common!
Sources:
- Bank FD: Fully taxable
- Savings account interest: Fully taxable
- Company deposits: Fully taxable
- Bonds/Debentures: Fully taxable
- Post Office deposits: Fully taxable
TDS: 10% if interest > ₹40,000 (₹50,000 for senior citizens)
Example:
Mrs. Sharma:
- FD interest: ₹80,000
- Savings interest: ₹5,000
- Total: ₹85,000 (added to income)
- Tax: As per slab rate (say 20%) = ₹17,000
Deduction: Section 57 - Collection charges (if any)
2. Dividend Income (Section 2(22))
From Indian companies: Taxable (from April 1, 2020)
Earlier: Exempt (company paid DDT - Dividend Distribution Tax)
TDS: 10% if dividend > ₹5,000
Example:
- Reliance dividend: ₹30,000
- TCS dividend: ₹20,000
- Total: ₹50,000
- Tax: Slab rates (added to income)
Covered in detail in separate chapter
3. Gifts (Section 56(2)(x))
Taxable if exceeding ₹50,000 in a year
From whom:
- Exempt: Relatives (parents, spouse, siblings, etc.)
- Exempt: On marriage, inheritance, will
- Taxable: Friends, non-relatives, anyone exceeding ₹50k
Example:
Rahul's gifts (FY 2023-24):
- From father: ₹2,00,000 → Exempt (relative)
- From friend: ₹30,000 → Exempt (< ₹50k)
- From employer (birthday): ₹60,000 → ₹10,000 taxable (exceeds ₹50k non-relative limit)
Valuation: Fair market value (FMV)
4. Lottery, Crossword, Races (Section 115BB)
Special tax rate: 30% (flat) + 4% cess = 31.2%
No deductions allowed (even ₹50k standard deduction not allowed!)
TDS: 30% at source
Example:
Won lottery: ₹10,00,000
- TDS deducted: ₹3,00,000
- Final tax: ₹3,12,000 (30% + 4% cess)
- Net receipt: ₹7,00,000 (after TDS)
- Additional ₹12,000 to pay while filing return
Note: This income is not added to slab income, taxed separately at 30%
5. Family Pension (Section 57(iia))
Pension received by family members after death of employee/pensioner
Deduction: 1/3rd of pension OR ₹15,000 (whichever less)
Example:
Widow receives family pension: ₹60,000/year from husband's employer
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Tax: ₹45,000 added to her total income, taxed at slab rate
6. Director's Sitting Fees
Fee for attending board meetings
Not salary: It's "Other Sources" income
Example:
- Attended 10 meetings, ₹30,000/meeting
- Total: ₹3,00,000
- Tax: Slab rates (no TDS usually)
7. Rental from Plant/Machinery
Letting of machinery/furniture/equipment (without building)
If with building: House Property income
Example:
Factory owner rents machines only to another company (without factory building):
- Rent: ₹5,00,000/year
- Income: Other Sources
8. Income from Subletting
Sublet a rented house → Profit is "Other Sources"
Example:
- You rent flat for ₹20,000/month (₹2.4L/year)
- Sublet same flat for ₹30,000/month (₹3.6L/year)
- Profit: ₹1.2L → Other Sources income
Deductions from Other Sources (Section 57)
Limited deductions allowed:
Section 57(i): Commission/remuneration for realizing divided/interest
Section 57(ii): Collection charges for interest
Section 57(iia): Family pension - 1/3rd or ₹15k
Section 57(iii): Repairs/insurance for machinery/plant let out (30% of rental)
Example:
Machine rental: ₹5,00,000 Repairs: ₹2,00,000
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Summary of Common Incomes
| Income Type | Section | Tax Treatment |
|---|---|---|
| Bank Interest | 56(1) | Slab rates, TDS 10% if > ₹40k |
| Dividend | 56(2)(i) | Slab rates, TDS 10% if > ₹5k |
| Gift (non-relative) | 56(2)(x) | If > ₹50k, taxable at slab |
| Lottery/Races | 115BB | 30% flat + 4% cess |
| Family Pension | 56(2)(ii) | 1/3rd or ₹15k exempt, rest taxable |
| Sitting Fees | 56(1) | Slab rates |
| Plant Rental | 56(1) | Slab rates, 30% deduction |
Practical Example
Mr. Verma's Other Sources Income (FY 2023-24):
- FD interest: ₹1,20,000
- Dividend (TCS, Reliance): ₹40,000
- Gift from friend (wedding): ₹1,00,000 (exempt - wedding gift!)
- Gift from colleague (birthday): ₹70,000 (taxable - exceeds ₹50k)
- Lottery won: ₹50,000
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Tax Calculation:
- ₹1,80,000 → Added to total income, taxed at slab
- ₹50,000 lottery → Taxed separately at 30% = ₹15,000
Key Points to Remember
✅ Residual head: Anything not in other 4 heads
✅ Most common: Interest, dividends
✅ Gifts taxable: If > ₹50k from non-relatives
✅ Lottery/races: 30% flat tax, no deductions
✅ Family pension: 1/3rd or ₹15k deduction
✅ Limited deductions: Section 57 (unlike business head)
Summary
- Other Sources: Residual income head (Section 56) for income not covered by other 4 heads
- Common incomes: Interest (FD, savings), Dividends (from shares), Gifts (>₹50k), Lottery (30% flat), Family pension (1/3rd or ₹15k exempt)
- Interest: Fully taxable at slab rates, TDS 10% if > ₹40k
- Dividends: Taxable since 2020 (TDS 10% if > ₹5k)
- Gifts: From non-relatives >₹50k taxable, relatives exempt
- Lottery: 30% + 4% cess (flat), no deductions, separate taxation
- Deductions: Section 57 (limited - collection charges, family pension 1/3rd, plant rental 30%)
Quiz Time! 🎯
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Next Chapter: Detailed coverage of Dividends, Gifts, and Lotteries! 🎁
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