Deductions from Income from Other Sources

Income of every kind, which is not chargeable to income tax under the heads:

1. Salary
2. Income from house property
3. Profits and gains of business and profession
4. Capital gains

can be taxed under the head income from other sources. However such income should also not
fall under income not forming part of total income under the IT Act.

The following income shall be chargeable to income tax under Section

56:Income from other sources, namely:

1. Dividend {except dividend exempt under section 10(34)/ (35)}.

2. Any annuity due or commuted value of any annuity paid under section 280D.
3. Any winning 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.
4. Any sum, received by the assessee from his employees as contributions to any provident
fund or Superannuation fund or any fund set up under the provisions of the Employees
State Insurance Act, 1948 (34 of 1948), or any officer fund for the welfare of such
employees, if such income is not chargeable to income-tax under the head Profits and
gains of business or profession;
5. Income from machinery, plant or furniture belonging to the assessee and let on hire, if the
income is not chargeable to income tax under the head Profits and gains of business
or profession;
6. Where an assessee lets on hire machinery, plant or furniture belonging to him and also
buildings, and the letting of the buildings is inseparable from the letting of the said
 machinery, plant or furniture, the income from such letting, if it is not chargeable to
income tax under the head Profits and gains of business or profession.
7. Any sum received under a Keyman insurance policy, including the sum allocated by way
of bonus on such policy, if such income is not chargeable to income tax under the heads
Profits and gains of business and profession or under the head Salaries. (Keyman
insurance policy means a life insurance policy taken by a person on the life of another
person who is/ was the employee of the 1st mentioned person or who is/was connected in
any manner whatsoever with the business of the 1st mentioned person.)

Incomes not specified in Section 56 but are to be included in the head of Income
from Other Sources:

Income from subletting

Interest on bank deposits and loans and securities.
Agricultural income from a place outside India.
Rent of plot of land
Mining rent and royalty.
Casual income under a will, contract, trust deed.
Salary payable to a member of parliament.
Income from undisclosed sources.
Gratuity paid to a director who is not an employee of a company.
Any casual income exceeding Rs. 5,000.

So, basically income from other sources is the residuary head of income, which takes within its
ambit any income, which does not specifically fall under any other head of income.

Now the question arises what are the deductions available from above stated Income from Other
Sources:

Section 57: Deductions from Income from Other Sources

The income chargeable under the head Income from other sources shall be computed after
making the following deductions:

In the case of dividends (other than dividends referred to in section 115-O) or interest on
securities, any reasonable sum paid by way of commission or remuneration to a banker or
any other person for the purpose of realizing such dividend or interest on behalf of the
assessee.
Where the income consists of recovery from employees as contribution to any provident
fund etc. in terms of clause (x) of section 2(24), then, a deduction will be allowed in
accordance with the provisions of section 36(1)(va) i.e. to the extent the contribution is
remitted before the due date under the respective Acts.
Where the income to be charged under this head is from letting or hire of machinery,
plant and furniture, with or without building, the following items of deductions are
allowable in the computation of such income:
 o the amount paid on account of any current repairs to the machinery, plant or
furniture.
o the amount of any premium paid in respect of insurance against risk of damage or
destruction of the machinery or plant or furniture.
o the normal depreciation allowance in respect of the machinery, plant or furniture,
due thereon.
In the case of income in the nature of family pension, a deduction of a sum equal to
o 33.33 per cent of such income; or
o 15,000, whichever is less, is allowable.

for the purposes of this deduction family pension means a regular monthly amount
payable by the employer to a person belonging to the family of an employee in the event
of his death.

Any other expenditure not being in the nature of capital expenditure laid out or expended
wholly and exclusively for the purpose of making or earning such income.
With effect from Assessment Year 2011-12, 50% of income by way of
compensation/enhanced compensation received chargeable to tax under section
56(2)(viii).

Since you learnt all the deductions allowed, so its better to know the deductions which are not at
all allowed to be deducted from Income from Other Sources:

Section 58: Deductions not Allowed from Income from Other Sources

No deduction shall be made in computing the Income from other sources of an assessee in
respect of the following items of expenses:

In the case of any assessee:

o any personal expense of the assessee;
o any interest chargeable to tax under the Act which is payable outside India on
which tax has not been paid or deducted at source.
o any payment taxable in India as salaries, if it is payable outside India unless tax
has been paid thereon or deducted at source.
In addition to these disallowances, section 58(2) specifically provides that the
disallowance of payments to relatives and associate concerns and disallowance of
payment or aggregate of payments exceeding 20,000 made to a person during a day
otherwise than by account payee cheque or draft covered by section 40A will be
applicable to the computation of income under the head Income from other sources as
well.
Income-tax and wealth-tax paid.
No deduction in respect of any expenditure or allowance in connection with income by
way of 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 shall be allowed in computing the said income.
 The prohibition will not, however, apply in respect of the income of an assessee, being
the owner of racehorses from the activity of owning and maintaining such horses.

Some Frequently Asked Questions on Income from Other Sources:

Q). If certain Income is not chargeable to tax under the specific head, can it be taxed under
the head Income from other sources?

A). If a receipt falls under one of the specific heads of income, then such receipt can be taxed
only in accordance with the provisions relating to that head. Income of every kind, which is not
chargeable to income tax under the heads 1) salary 2) income from house property, 3) profits and
gains of business and profession, and capital gains can be taxed under the head income from
other sources. However, this is subject to the condition that such income does not fall under
income, not forming part of total income under the IT Act and provided that it is not exempted
from taxation under any provision of the I-T Act.

Q). Is the dividend income of all assessees liable to tax?

A). There are certain assessees who are exempted in respect of the taxability of dividend income
and therefore, dividend income in the hands of these particular assessees, to the extent as
specified in the section, is not taxable even though the same falls under the head Income from
other sources. The dividend income, earned by the following entities or institutions, is exempt
from tax, namely:

1. Local Authorities.
2. An approved scientific research association.
3. A venture capital fund or venture capital company from investments made by way of
equity shares in a venture capital undertaking.
4. Notified news agency.
5. Pension fund set up by LIC or any other insurer approved by the Controller of Insurance
or Insurance Regulatory and Development Authority
6. Fund established for the welfare of employees.
7. Trust or society approved by Khadi and Village Industries Commission.
8. An authority whether known as Khadi and Village Industries Board or any other name for
the development of Khadi and Village Industries.
9. Any body or authority established, constituted or appointed under any enactment for the
administration or public, religious, or charitable trusts or endowments or societies for
religious or charitable purposes.
10. SAARC Fund for Regional Projects.
11. Secretariat of Asian Organization of Supreme Audit Institutions.
12. Insurance Regulatory and Development Authority.
13. Any person, receiving income on behalf of specified national funds, approved public
charitable institutions, educational institutes, and hospital.
14. Mutual funds registered under SEBI Act or set up by a public sector bank or a public
financial institution or authorized by the Reserve Bank of India. However, w.e.f.
1.4.20003, income from units of the UTI and mutual funds will also be taxed.
 15. Investor Protector Fund. Synonym
16. Credit Guarantee Fund Trust thesaurus
17. Infrastructure capital fund.
18. Statutory provident funds, Recognized provident funds, Approved Superannuation funds,
approved gratuity funds, and approved coal mines provident funds.
19. Registered Trade Unions or association of Registered Trade Unions.
20. Employees State Insurance Fund.
21. Members of a Scheduled Tribe, residing in Manipur, Nagaland, Tripura, Arunachal
Pradesh, Mizoram and Ladakh.
22. Statutory Corporation or a body/ institution financed by the Govt., formed for promoting
the interest of Scheduled castes/tribes, minority community.
23. Co-operative societies formed for promoting the interest of Scheduled castes/tribes.
24. Marketing authority, engaged in letting godowns and warehouses.
25. Certain Commodity Boards/ Authorities.
26. Political parties.

Q). Would the interest income be assessed as business income or as income from other
sources?

A). Interest Income is either assessed as Business Income or as Income from other sources
depending upon the activities carried on by the assessee. If the investment yielding interest is
part of the business of the assessee, the same would be assessable as business income but
where the earning of the interest income is incidental to and not the direct outcome of the
business carried on by the assessee, the same is assessable as Income from other sources.
Business implies some real, substantial and systematic or organized course of activity with a
profit motive. Interest, generated from such an activity, is business Income; else it would be
interest from other sources

Click to share on LinkedIn (Opens in new window)

Click to email this to a friend (Opens in new window)

In an article I wrote on Income from Other Sources, I briefly touched upon deductions against
Income from Other Sources. In this article, I will explain in detail the expenses that you are
allowed to deduct as well as those that you cannot as per the Income Tax laws of the country.

Permissible deductions against income from other sources

The following expenses are allowed as deductions under the Income Tax Act against income
from other sources:
1. In case you have received income from letting out your furniture, machinery or plant, then any
amount you spend on the repair and maintenance of plant, machinery or furniture or any amount
you pay in the form of insurance premium against the risk of damages of machines, plant, and
furniture will be allowed as a deduction. It is important to note that depreciation expenses will
only be allowed as per the rules and guidelines stated under the Indian Income Tax Act, 1961.

2. In case you receive income in the nature of a family pension plan, a deduction of one-third of
such income or 15,000, whichever is less. For the purpose of this availing deduction, family
pension means a regular monthly sum payable by the employer to a person belonging to the
family of the employee in the event of the employees death.

3. Any other expenditure other than capital expenditure laid out or expended wholly and
exclusively by you to generate such income.

4. A deduction of a sum equal to 50% of interest income you earn from compensation or
enhanced compensation income shall be allowed. Enhanced compensation, in this case, is any
amount by which the compensation or consideration is enhanced or further enhanced by a ruling
of the Court, Tribunal or other authority.

5. Your contribution as an employee towards your Provident Fund, Superannuation Fund, ESI
Fund or any other fund set up with the purpose of your welfare by your company of employment.

6. Any expenses or allowances made by you in connection with owning or maintaining race
horses.

Expenses which cannot be deducted against Income from Other Sources

The following expenses cannot be deducted by you against Income from Other Sources:

1. Any personal expenses incurred by you.

2. Any interest chargeable to tax if such interest is paid outside India and no tax has been
deducted at the source.

3. Any amount in the form of salary paid outside India if no tax has been deducted at source
against such salary.

4. Any amount paid by you in the form of a wealth tax.

5. Any expenditures paid in cash by you during the financial year that exceeds 20,000, and in
the case of transportation 35,000. You must pay the amount which exceeds the specified limit
via an account payee cheque or demand draft.

6. Any expenses incurred by you in connection with gambling, betting, lotteries, crossword
puzzles, and card games.