Specific Incomes included under ‘Income from Other Sources’ [Section 56(2)]

The Indian Income Tax Act, 1961 classifies taxable income under five distinct heads, with “Income from Other Sources” serving as the residual category under Sections 56 to 59. This head functions as a catch-all provision that taxes any income which doesn’t fall under the other four categories: Salaries, Income from House Property, Profits and Gains of Business or Profession, and Capital Gains.

Section 56(1) establishes the fundamental principle that any income which is not exempt and not taxable under any other head shall be assessed under “Income from Other Sources.” Section 56(2) then provides an inclusive (but not exhaustive) list of specific types of income chargeable under this head. This provision has evolved into an essential tool for preventing tax leakage and ensuring comprehensive coverage of all taxable income streams.

Key Characteristics of Income from Other Sources

For income to qualify under this head, three conditions must be satisfied 6:

1. Income must be generated
2. The income must not be exempt under any other provision of the Income Tax Act
3. The income cannot be claimed under salary, house property, business/profession, or capital gains heads

The nature of this provision makes it particularly important for taxing irregular, non-recurring, or unconventional income streams that might otherwise escape taxation.

Here’s a detailed breakdown of incomes specifically included under Section 56(2) of the Income Tax Act, 1961, as “Income from Other Sources”:

Key Incomes Taxable Under Section 56(2)

1. Dividend Income[Section 56(2)(i)]
   • Dividends from Indian companies (if exceeding ₹10 lakh, taxed at 10% under Section 115BBDA).
   • Dividends from foreign companies (always taxable at slab rates).
   • Exception: Dividends exempt under Section 10(34) if DDT was paid by the company.
2. Casual Income[Section 56(2)(ib)]
   • Winnings from lotteries, gambling, horse races, crossword puzzles, etc.
   • Taxed at 30% + 4% cess(effective 31.2%) under Section 115BB. No deductions allowed.
3. Interest Income[Section 56(2)(id)]
   • Interest on bank deposits (FDs, RDs), bonds, or securities not taxable under business income.
   • Includes interest on enhanced compensation (with 50% deduction under Section 57(iv)).
4. Gifts and Property Received[Section 56(2)(x)]
   • Cash giftsexceeding ₹50,000 annually from non-relatives (aggregate value).
   • Immovable property: Taxable if stamp duty value > consideration by 10% (threshold: ₹50,000).
   • Movable property(jewelry, shares, art): Taxable if FMV exceeds consideration by ₹50,000.
   • Exemptions: Gifts from relatives, marriage, inheritance, or COVID-19 relief (up to ₹10 lakh).
5. Rental Income from Assets[Section 56(2)(ii)/(iii)]
   • Rent from machinery, plant, or furniture (if not part of business operations).
   • Composite rent (building + inseparable assets) taxed under this head.
6. Keyman Insurance Proceeds[Section 56(2)(iv)]
   • Amounts received under Keyman policies (including bonuses) by non-employees.
7. Shares Issued Above FMV[Section 56(2)(viib)]
   • Premium on shares issued by closely held companies exceeding FMV (taxable to the company).
   • Exception: Startups registered with DPIIT.
8. Forfeited Advances[Section 56(2)(ix)]
   • Advance money forfeited for non-transfer of capital assets.
9. Employment Termination Compensation[Section 56(2)(xi)]
   • Payments received for termination/modification of employment terms.
10. Life Insurance Maturity Proceeds[Section 56(2)(xiii)]
    • Amounts exceeding total premiums paid (unless exempt under Section 10(10D)).
11. Debt Repayment by REITs/InVITs[Section 56(2)(xii)]
    • Excess repayment over acquisition cost by business trusts.

(A)  Other Incomes Which Are Normally Included Under the Head ‘Income from Other Sources’

Following are some of the other incomes which are normally chargeable to tax under this head because these are not covered under any of the four specified heads (salary, house property, business/profession, or capital gains heads):

1. income from sub-letting of a house property by a tenant;
2. casual income;
3. insurance commission;
4. family pension (payments received by the legal heirs of a deceased employee);
5. director’s sitting fee for attending board meetings;
6. interest on bank deposits/deposits with companies;
7. interest on loans;
8. income from undisclosed sources;
9. remuneration received by Members of Parliament;
10. interest on securities of foreign governments;
11. examinership fees received by a teacher from an institution other than his employer;
12. total interest till date on employee’s contribution to an unrecognised provident fund at the time when the payment of lump sum amount from the unrecognised provident fund is due;
13. rent from a vacant piece of plot of land;
14. agricultural income from agricultural land situated outside India;
15. interest received on delayed refund of income-tax;
16. income from royalty, if it is not income from business or profession;
17. Director’s commission for standing as a guarantor to bankers;
18. Director’s commission for underwriting shares of a new company;
19. Gratuity received by a director who, under the relevant contract, is not an employee or servant of the company, is assessable as income from other sources;
20. Income from racing establishment;
21. Income from granting of mining rights;
22. Income from markets, fisheries, rights of ferry or moorings;
23. Income from grant of grazing rights;
24. Interest paid by the Government on excess payment of advance tax, etc.;
25. Income received after discontinuance of business.