Income from Other Sources Taxation

How is Income from Other Sources Taxed in India?

If your income doesn’t belong to the main four categories- salary, house property, business/profession, & capital gains falls under "income from other sources" for tax. This category is a catch-all for earnings that aren’t clearly defined elsewhere. It’s viewed as the leftover category under the Income Tax Act of 1961. Unless stated otherwise, this income isn’t exempt from taxes.

Section 56: When Income Falls Under "Other Sources"

According to Section 56 of the Income Tax Act, your income will be taxed under "other sources" if it meets these three requirements:

• You have generated income.

• That income isn’t exempt according to any part of the Income Tax Act 1961.

• It can’t be categorized as salary, business/professional earnings, rental income, or capital gains.

Types of Income from Other Sources

1. Interest Income

   Many people earn interest from savings accounts and fixed deposits. This interest adds to your total earnings and will be taxed based on your income slab. For example, if you have a fixed deposit with an interest yield of ₹30,000 yearly, this amount goes into your total income calculation—affecting your tax amount.

2. Deduction on Interest Income Under Section 80TTA

   • Eligibility: Individuals below 60 years of age and Hindu Undivided Families (HUFs) can claim this deduction.

   • Exemption Limit: Interest income up to Rs. 10,000 in a financial year is exempt from tax.

   • Eligible Accounts: Savings accounts with banks, co-operative societies, or post offices.

3. Tax on Fixed Deposits

   • Taxability: Interest earned from fixed deposits is added to your total income and taxed according to your applicable tax slab.

   • TDS: Tax Deducted at Source (TDS) is typically deducted by the bank when interest is earned.

   • Senior Citizen Exemption: Senior citizens (60 years or older) can enjoy a tax exemption of up to Rs. 50,000 on interest income from savings bank accounts, fixed deposits, and recurring deposits.

   

4. Avoiding TDS on Fixed Deposits

   • PAN Submission: Providing your PAN details to the bank can reduce the TDS rate from 20% to 10%.

   • Form 15G/15H: Individuals with total income below the taxable limit can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to request the bank to not deduct TDS.

5. Rental Income

   Suppose you rent out property—residential or commercial—that counts as income from other sources. After subtracting allowable expenses like maintenance fees & local taxes, the remaining rental income gets added to your total and taxed. So, if you make ₹25,000 from rent but pay out ₹5,000 in deductible expenses, you’d pay tax on ₹20,000.

6. Dividends & Mutual Funds

   When you invest in shares or mutual funds, you might get dividends. Dividends from Indian companies were taxable in the hands of the respective companies in the form of DDT (Dividend Distribution Tax) before the year 2020. However, after the Finance Act 2020, it is the investor or shareholder that pays the tax.

7. Family Pension

   Family pensions received after someone passes away are also taxable. The amount owed will rely on applicable pension rules and your relationship with the deceased individual. For example, if you're getting a family pension of ₹50,000 per year, that income gets taxed according to your slab rate.

8. Lottery & Gambling Winnings

   Winnings from lotteries or gambling face higher taxes than regular earnings—sometimes up to 30%. Often this tax gets deducted before the winnings reach you. So if you win ₹1,00,000 in a lottery, upon deduction, you may end up with just around ₹70,000.

9. Gifts & Cash Prizes

   Cash prizes or gifts over a certain limit are viewed as taxable income. Luckily, gifts from close family members or those received on special occasions like weddings are generally exempt—making them less burdensome financially.

10. Royalty Income

    For creatives such as writers or artists—royalties earned are taxable. The tax rate depends on what type of work you're doing and the agreements made with publishers/production companies. Hence it’s crucial to keep accurate records of various projects' earnings.

    

11. Agricultural Income

    Usually, agricultural earnings are exempt from taxes. However, significant amounts might attract tax liabilities. Farmers making high incomes should consult tax experts to stay compliant with regulations & grasp their obligations.

12. Commission Income

    If you receive commission through sales or brokerage services that's also taxable under this category. For example, if you earn ₹1,00,000 as a commission for selling property; it will count toward your total taxable income.

13. Income from Subletting

    Subletting rented properties earns money too. If your rent is ₹15,000 but you charge ₹25,000 to someone else for subletting—it results in a profit of ₹10,000 which is taxable.

14. Interest on Income Tax Refunds

    If taxpayers overpay their taxes—they could receive a refund later. This typically happens after filing a return; during this waiting period—you gain interest on the refund amount—which is taxable.