Income from other sources

This is the residual 'head of income' covering any item of taxable income which does not specifically fall under the heads of 'Profits and Gains of Business or Profession', 'Capital Gains', 'House Property', or 'Salary'. However certain incomes are necessarily to be charged under this in this section as provided in Sec 56(2) of the Act.

• What specifically constitutes Income from Other Sources [Sec 56(2)]
• Deductions from income from other sources (Sec. 57)
• Amounts not deductible from other sources (Sec 58)
• Deduction of ad hoc expenses on certain commission incomes

What specifically constitutes Income from Other Sources [Sec 56(2)]

The following incomes are always to be taxed under this head of income :-

• Dividends. With effect from June 1st, 1997 the amount declared, distributed or paid by a domestic company by way of dividends ( whether interim or otherwise) whether out of current or accumulated profits are chargeable to tax in the hands of the Company only and such income in the hand of the recipient has been made exempt from tax.
• Any 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.
• The following incomes are also chargeable to tax under this head only if the same are not otherwise chargeable to tax under the head 'Salaries'or 'Profits and Gains of Business or Profession' :-
  • Any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any other fund set up for the welfare of the employees.
  • Income by way of interest on securities.
  • Income from machinery, plant or furniture belonging to the assessee and let on hire.
  • Income from letting on hire machinery, plant or furniture belonging to the assessee along with buildings if the letting of the building is inseparable from the letting of the said machinery, plant or furniture.
  • Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. This income will additionally not be taxable under this head if it is chargeable to tax under the head Salaries.

• Salaries received by a person who cannot be termed an employee.
• Annuities which are not provided by the employers.
• Salaries of Members of Parliament and MLAs.
• Debenture interests.
• Interest on bank deposits and all other interest incomes if it is not chargeable to tax under the head Profits and Gains of Business or profession.
• Rental incomes from properties which are not owned by the assessee e.g. in cases of subletting or in respect of sub lease of properties etc.
• Interest on fixed deposits and other deposits before the commencement of business.
• Family pensions

Deductions from income from other sources (Sec. 57)

The Income Tax Act permits deduction of expenditure laid out wholly and exclusively for the purpose of making or earning the Incomes from Other Sources as long as the expenditure is not of a capital nature. Besides certain specific deductions are also permitted from the income from other sources as under :

Nature of income from other sources	Deductions permissible
Dividend 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 realising such dividend or interest on behalf of the assessee.
Employees contributions towards Provident fund, Superannuation fund or any other welfare fund received by the assessee employer	The amounts paid by the assessee employer by way of crediting the employees' account in the relevant fund on or before by the due date specified under any Act, rule, order or notification issued thereunder.
(a) Income from machinery, plant or furniture belonging to the assessee and let on hire. (b) Income from letting on hire machinery, plant or furniture belonging to the assessee along with buildings if the letting of the building is inseparable from the letting of the said machinery, plant or furniture.	(1) Amount spent on current repairs of the premises and on current repairs of machinery, plant or furniture. (2) Amount of any premium paid in respect of insurance against risk of damage or destruction of the premises , machinery, plant or furniture. (3) Depreciation in respect of the building, machinery, plant and furniture as per sub section (1) and (2) of section 32 and as subject to the provisions of section 38 of the Act.
Family pension (as defined in Sec 57(iia)	A sum equal to one third of such income or Rs. 15,000/= whichever is less.

Where any expense or allowance has been allowed to the assessee in an earlier previous year from the income from other sources and in any subsequent previous year the assessee obtains any amount in respect of such expenditure or allowance in cash or in kind or some benefit on account of any remission or cessation thereof , such amount or the value of such benefit shall be chargeable to tax in the year of remission or cessation as income from other sources. This amount is taxable irrespective of the fact whether the relevant income from other sources is in existence in the subsequent previous year or not. The provision are also applicable to a successor of the assessee in the same fashion as section 41(1) applies to the 'Profits and Gains from Business and Profession'.

Amounts not deductible from other sources (Sec 58)

There are certain amounts which are not allowed as a deduction from the income from other sources . Such expenses include :

• Personal expenses of the assessee.
• Interest chargeable under the Act which is payable outside India but on which no tax was deducted at source.
• Any payment which is chargeable under the head 'Salaries' if it is payable outside India but on which no tax was deducted at source.
• Any sum paid on account of Wealth Tax.
• The restrictions laid down in section 40A of the Act shall also be applicable in respect of the Income from other sources.
• The provisions of section 44D are applicable to the income from other sources in case of a foreign company as they apply in computing the income chargeable under the head 'Profits and gains of Business and Profession'.
• The Act prohibits any deduction in respect of any expenditure or allowance in connection with 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. The 'horse race' means a horse race upon which wagering or betting may be lawfully made. However this prohibition does not apply to an assessee who is the owner of horses maintained by him for running in horse races when he earns income from other sources from the activity of owning and maintaining such horses.

Deduction of ad hoc expenses on certain commission incomes

The CBDT has by way of Circulars prescribed certain adhoc deductions from income from other sources in certain cases of Commission incomes which are detailed as under :

Circular No. 594, dated 27th February, 1991

As per this Circular an ad hoc deduction for expenses at the rate of 50% of the gross receipts of commission is available from the commission payable to agents appointed under the Standardised Agency System for Government securities and the agents of Post Office Time Deposits and Unit Trust of India . This deduction is available only where the agents do not maintain detailed accounts and the gross commission received by the agents is less than Rs. 60,00. This benefit of an ad hoc deduction is available to the authorised agents of the following securities and schemes :-

1. National Savings Certificates VIII Issue;
2. Social Security Certificates;
3. Post Office Time Deposit Accounts;
4. Post Office Recurring Deposit Accounts;
5. National Savings Scheme, 1987;
6. Post Office Monthly Income Account Scheme;
7. Kisan Vikas Patra;
8. Public Provident Fund Accounts; and
9. Deposit Scheme for Retiring Government Employees, 1989.

Circular No. 648, Dated 30-3-1993

Sub. - Section 56 of the Income-tax Act, 1961 - Income from other sources

'The Board in F. No. 14/9/65-IT(A-1) dated 22-9-1965, as subsequently modified in Instruction No. 1546 dated 6-1-1984, had granted, subject to conditions therein specified, the benefit of ad hoc deducation in respect of the expenses incurred by agents of the Life Insurance Corporation.

2. In supersession of the above Circular and Instruction, the Board have decided that the benefit of ad hoc deduction to insurance agents of the Life Insurance Corporation having total commission (including first year commission, revewal commission and bonus commission) of less than Rs. 60,000 for the year, and not maintaining detailed accounts for the expenses incurred by them, may be allowed as follows :

(i) where separate figures of first year and renewal commission are available, 50 per cent of first year commission and 15 per cent of the renewal commission;

(ii) where separate figures as above are not available, 33-1/3 per cent of the gross commission.

In both the above cases, the ad hoc deduction will be subject to a ceiling limit of Rs. 20,000.

3. The "gross commission" in (ii) above will include first year as well as renewal commission but will exclude bonus commission.

4. The complete amount of bonus commission is taxable and will be taken into account for purposes of computing the total income, and no ad hoc deduction will be allowed from this amount.

5. The benefit of ad hoc deduction will not be available to agents who have earned total commission of more than Rs. 60,000 during the year. The admissibility of the expenditure claimed by such agents will be decided by the Assessing Officers as per the provisions of the Income-tax Act.

6. This will apply to assessment year 1993-94 and subsequent years.'

Circular No. 677, dated 28th January, 1994.

Deduction of expenses on commission payable to agents of mutual funds.

'The Board in Circular No. 594 (F. No. 168/6/89-ITA-I, dated 27th February, 1991, and corrigendum dated 15th May, 1991), has granted, subject to conditions therein specified, benefit of ad hoc deduction for expenses at 50% of the gross receipts of commission, to the authorised agents of the Unit Trust of India and the agents of the securities specified in the circular. The benefit of ad hoc deduction is available only where no detailed accounts are maintained and the gross commission received by the agents is less than Rs. 60,000.

2. The Board has received representations for grant of similar ad hoc deduction to agents of mutual funds.

3. The Board has considered these representations and has decided that the benefit of ad hoc deduction for expenses at 50% of the gross receipts of commission be given to the agents of those mutual funds which are notified by the Central Government for purposes of section 10(23D) of the Income-tax Act, 1961. The benefit of ad hoc deduction will only be available to agents not maintaining detailed accounts for the expenses incurred by them and having gross commission of less than Rs. 60,000 for the year, including gross commission as authorised agents of the Unit Trust of India and agents of securities specified in Board's Circular No. 594, dated 27th February, 1991, and corrigendum dated 15th May, 1991, as well as total commission from the Life Insurance Corporation as specified in Board's Circular No. 648 (F. No. 168/13/93-ITA-I, dated 30th March, 1993).

4. The benefit of ad hoc deduction will not be available to agents who have earned gross commission as computed above of more than Rs. 60,000 from all the above mentioned sources put together during the year. The admissibility of expenditure claimed by such agents (with higher income) will be decided by the Assessing Officers as per the provisions of the Income-tax Act.

(Sd.)

Under Secretary to the Government of India.'