While the income from other sources is taxable, there are certain amounts that are not deductible while computing this income. In this blog post, we will explore the different amounts that are not deductible in computing income from other sources.
1. Any of the Following Payments
The following payments shall not be deductible in computing the income chargeable under the head ‘Income from Other Sources’:
(a) Personal Expenses of the Assessee [Section 58(1)(a)(i)];
(b) like section 40(a)(ia), 30% of any sum payable to a resident on which tax is deductible at source tinder section 192 to section 1 941,A and such tax has not been deducted or after deduction has not been paid on or before the due date specified in section 139(1) [Section
However, where in respect of any such sum,—
(i) tax has been deducted in any subsequent year, or
(ii) has been deducted during the previous year but paid after the due date specified in section 139(1),
30% of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Tax shall be deemed to have been deducted and paid if assessee is not deemed to be in default [Second proviso to section 40(a)(ia) also applicable in this case]:
Where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to section 20 1(1), then, for the purpose of section 40(a)(ia), it shall be deemed that the assessee has—
(a) deducted and
(b) paid the tax on such sum
on the date of furnishing of return of income by the resident payee referred to in the said proviso.
The amended first proviso to section 201(1) provides as under:
Any person, including the Principal Officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax, if such payee—
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income.
Therefore, if the payee satisfies all the above 3 conditions and the deductor furnishes a certificate to this effect from a chartered accountant in such form as may be prescribed, then the deductor will be allowed the deduction of the expenses mentioned in section 40(a)(ia) by assuming that the deductor has deducted and paid the tax on such sum on the date of furnishing return of income by the payee aforesaid;
(c) interest paid outside India on which tax has not been deducted at source [Section 58(1)(a)(ii)];
(d) salaries paid outside India on which tax is not deducted at source [Section 58(1)(a)(iii)];
(e) any expenditure referred to in section 40A [Section 58(2)] like excessive payments to relatives referred to in Section 40A(2)],
Cash Payments exceeding Rs.10,000 / Rs.35,000 made in a mode other than account payee cheque/draft, etc. referred to in section 40A(3) & (3A), payment of gratuity referred in section 40A(7), etc.;
(f) income-tax / wealth-tax paid;
(g) any expenditure or allowance in connection with winning of lottery, crossword puzzles, etc. as already discussed under para 8.6b. However, expenditure incurred by the assessee for the activity of owning and maintaining race horses shall be allowed as a deduction while computing the income from this activity. [Section 58(4)]
|Interest paid on amounts borrowed for meeting tax liabilities is not deductible, since the liability to pay income-tax and wealth-tax is a personal one.|
2. Capital Receipts
Capital receipts, such as gifts, loans, and inheritances, are not considered as income and hence, are not deductible while computing income from other sources. These receipts are considered as capital in nature and do not form a part of the regular income earned by an individual or entity.
3. Dividends Exempt under Section 10(34)
Dividends received from domestic companies that are exempt under Section 10(34) of the Income Tax Act are not deductible while computing income from other sources. These dividends are already exempt from tax and hence, cannot be claimed as a deduction while calculating the taxable income.
4. Interest on Securities Exempt under Section 10(15)
Interest received on certain specified securities that are exempt under Section 10(15) of the Income Tax Act is not deductible while computing income from other sources. These securities include bonds issued by the government or certain public sector undertakings and are specifically exempted from tax.
5. Winnings from Lottery, Crossword Puzzles, and Game Shows
Winnings from lottery, crossword puzzles, and game shows are taxable under the head ‘Income from Other Sources’. However, any amount paid or credited as winnings from these sources is not deductible while computing income from other sources. These winnings are considered as income and taxed accordingly without any deductions.
6. Interest on Compensation or Enhanced Compensation
Interest received as compensation or enhanced compensation under any law for the time being in force is taxable under the head ‘Income from Other Sources’. However, this interest is not deductible while computing income from other sources. It is treated as a separate source of income and taxed accordingly.