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

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

There are many incomes which are taxable under the head ‘Income from Other Sources’. However, section 56(2) enlists certain specific incomes which shall be chargeable to Income-tax under the head ‘Income from other sources’. These are:

(i)         Dividend Income : dividends [including deemed dividend referred to in section 2(22)] Prior to 1.4.2020, the company was liable to pay dividend distribution tax on the amount of dividend declared, distributed or paid.

(ii)        Lottery, Crossword Puzzles, Card Games, and Horse Races: 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; and

(iii)       any sum received by the assessee from his employees as contribution to any provident fund, or any other welfare fund for the employees provided it is not taxable under the head ‘Profits and Gains of Business or Profession’.

As per the meaning of income, contribution of the employee deducted by the employer is treated as income of the employer, but if the employer deposits such amount on or before the due date of deposit applicable for such contribution, he will be allowed a deduction on account of the same. Law, therefore, treats this contribution of the employee as the income of the employer in the first instance.

(iv)      income by way of interest on securities provided the income is not chargeable to Income-tax under the head ‘profits and gains of business or profession’.

(v)        income from machinery, plant or furniture belonging to the assessee and let on hire, provided the income is not chargeable to Income-tax under the head ‘profits and gains of business or profession’.

See also  [Section 45(5)] : Capital Gain on Transfer by way of Compulsory Acquisition of an Asset

(vi)       where the assessee lets on hire, the machinery, plant or furniture belonging to him and also buildings, and letting of 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’.

(vii)      any sum received under a Keyman Insurance Policy, including the sum allocated by way of bonus on such policy, if such income is not taxable under the head “Salaries” or “Profits and gains of business or profession”.

(viii)     any sum of money, the aggregate value of which exceeds 5O,0OO is received without consideration or property (whether movable or immovable) is received without consideration or property is received for an inadequate consideration by any person on or after 1.4.2017, if the amount of such gift or inadequate consideration exceeds 50,000 [Section 56(2)(x)]. For details see para 8.9.

(ix)       where a closely held company receives in any previous year from any resident person, any consideration for issue of shares that exceeds the face value of shares, then the aggregate consideration received for such shares which is in excess of fair market value shall be taxable.

(x)        income by way of interest received on compensation or on enhanced compensation to be taxed in the year in which such interest is received.

(xi)       Forfeiture of advance received for transfer of a capital asset to be taxed under the head “income from other sources” [Section 56(2)(ix)].

See also  Perquisites - Fringe Benefits or Amenities which shall be Taxable Perquisite in the hands of All Employees

(xii)      any compensation received or receivable, whether in the nature of revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its employment shall be taxable under section 56 of the Act. [Section 56(2)(xi)]

These are the incomes, which have been specified, in particular, to be chargeable under the head “income from other sources”.

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:

(i)         income from sub-letting of a house property by a tenant;

(ii)        casual income;

(iii)       insurance commission;

(iv)       family pension (payments received by the legal heirs of a deceased employee);

(v)        director’s sitting fee for attending board meetings;

(vi)       interest on bank deposits/deposits with companies;

(vii)      interest on loans;

(viii)     income from undisclosed sources;

(ix)       remuneration received by Members of Parliament;

(x)        interest on securities of foreign governments;

(xi)       examinership fees received by a teacher from an institution other than his employer;

(xii)      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;

(xiii)     rent from a vacant piece of plot of land;

(xiv)     agricultural income from agricultural land situated outside India;

(xv)      interest received on delayed refund of income-tax;

See also  [Section 56(2)(ib)]: Taxability of Income from Winnings from Lotteries, Crossword Puzzles, Horse Races and Card Games

(xvi)     income from royalty, if it is not income from business or profession;

(xvii)    Director’s commission for standing as a guarantor to bankers;

(xviii)   Director’s commission for underwriting shares of a new company;

(xix)     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;

(xx)      Income from racing establishment;

(xxi)     Income from granting of mining rights;

(xxii)    Income from markets, fisheries, rights of ferry or moorings;

(xxiii)   Income from grant of grazing rights;

(xxiv)    Interest paid by the Government on excess payment of advance tax, etc.;

(xxv)    Income received after discontinuance of business.

1.         The Supreme Court has held that interest received by the assessee from the bank on a fixed deposit is income in his hands and there could be no deduction therefrom unless there is a law permitting such deduction. The interest on a loan taken by the assessee on the security of the fixed deposit did not go to reduce the income by way of interest on the fixed deposit as there was no provision for deduction of such interest on the loan.

2.         Refund of income-tax is not income as it was not allowed as a deduction but interest received on refund will be treated as income.

3.         Where perquisites are provided to a director, who is not an employee of the company, the valuation of such perquisites should also be done as per rules relating to valuation of perquisites.

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