When it comes to filing income tax in India, not all income fits neatly into the categories of salary, business income, or capital gains. That’s where the often-overlooked head – “Income from Other Sources” – comes into play. As per Section 56 of the Income Tax Act, this head is a catch-all category for taxable income not covered elsewhere.

In this comprehensive guide, we explain:

• What qualifies as income from other sources
  
• The types of income covered
  
• Applicable exemptions and deductions
  
• How these are taxed
  
• Common FAQs to help you avoid mistakes during tax filing

What is Income from Other Sources?

Income from Other Sources list is a residual head of income under the Income Tax Act, 1961. If you earn money that doesn’t fall under:

• Salary
  
• House Property
  
• Capital Gains
  
• Business or Profession
  

…it is taxed under Income from Other Sources (IFOS).

This head ensures no income escapes taxation just because it doesn’t fit traditional categories. Additionally, if you are earning income that requires GST compliance, then your income may NOT remain under “income from other sources”

Income from other Sources List.

Here are the most frequent types of income taxed under this head.

1. Dividend Income

• Includes dividends from Indian companies, mutual funds, or foreign companies.
  
• Taxable in the hands of the recipient (excluding exemptions under Section 10(34) which were removed post-Budget 2020).
  

2. Interest Income

• Interest earned from savings accounts, fixed deposits (FDs), recurring deposits (RDs), or post office schemes.
  
• Fully taxable unless exempted (like interest on PPF).
  

3. Winnings from Lotteries, Games, Gambling

• This includes:
  
  • Lottery prizes
    
  • Crossword puzzles
    
  • Horse racing
    
  • Game shows or any betting activities
    
• Tax Rate: Flat 30% + surcharge and cess (Section 115BB) with no deductions allowed.
  

4. Family Pension

• Received by legal heirs after the death of an employee.
  
• Taxable as income from other sources.
  
• Deduction: Lower of ₹15,000 or 1/3rd of the pension received (Section 57(iia)).
  

5. Gifts (Cash or Property)

• If value exceeds ₹50,000 in a financial year (not received from a relative), it becomes taxable.
  
  • Cash: Total value taxed if over ₹50,000.
    
  • Movable Property (e.g., shares, jewelry): Fair market value is taxed.
    
  • Immovable Property: Taxed based on stamp duty value if received without consideration or at a substantially lower value.
    
• Exemptions:
  
  • Gifts received from relatives
    
  • On the occasion of marriage
    
  • Under a will or inheritance
    

6. Compensation for Employment Termination

• Amounts received from employers upon early termination or alteration of employment conditions.
  

7. Interest on Compensation

• Interest awarded in compensation cases (like land acquisition).
  
• 50% deduction allowed (Section 57(iv)).
  

8. Advance Forfeited on Property Sale

• If you received an advance for selling a property and the deal fell through, the forfeited amount is taxed under IFOS.
  

9. Income from Keyman Insurance Policy

• If a maturity amount or bonus is received under such policies by anyone other than the employer, it becomes taxable.

Deductions Allowed Under Section 57

If you’re earning income under this head, you can claim specific deductions. Key ones include:

1. Interest Expense on Dividend Income

• Up to 20% of the dividend income earned.
  

2. Interest on Securities

• Commission/remuneration paid to a banker or any person for realising such income.
  

3. 50% Deduction on Interest Received for Compensation

• As per Section 57(iv), 50% of the interest income from enhanced compensation is deductible.
  

4. Family Pension Deduction

• Lower of ₹15,000 or one-third of pension income.
  

5. Any Other Expense Wholly for Earning That Income

• Like collection charges, legal fees, etc., provided it’s not capital expenditure.

Deductions not Allowed Under Section 58

Certain expenses are not eligible for deduction under this head:

• Personal expenses
  
• Cash payments exceeding ₹10,000 in a day to a single person
  
• Interest or salary paid outside India if TDS is not deducted or tax isn’t paid
  
• Any payment under “salary” made outside India without TDS compliance
  
• Payments where 30% TDS was required but not deducted or deposited before filing

How is “Income from other sources” Taxed?

Regular Income (e.g., interest, dividends):

• Taxed as per applicable slab rate of the assessee
  

Special Income (e.g., lottery, game winnings):

• Taxed at a flat 30% under Section 115BB
  
• No deductions or exemptions allowed on these incomes

Important FAQ’s

1. Are Gifts from Friends Taxable?

Yes, if the total value exceeds ₹50,000 in a financial year and the friend is not a “relative” under income tax rules.

2. Is Interest on FD and RD Fully Taxable?

Yes. Interest from FD and RD is fully taxable under IFOS. Banks may deduct 10% TDS if interest exceeds ₹40,000 (₹50,000 for senior citizens).

3. Can I Claim Deduction under Section 80TTA for Interest on FD?

No. Section 80TTA applies only to savings account interest up to ₹10,000 (₹50,000 for senior citizens under 80TTB).

4. Is Marriage Gift from Parents or Relatives Taxable?

No. Gifts received from relatives or on the occasion of marriage are fully exempt under Section 56(2)(x).

5. How to Save Tax on Income from Other Sources list?

• Use applicable deductions under Section 57
  
• Invest in tax-free instruments (like PPF)
  
• Ensure correct disclosures in ITR to avoid penalties

Conclusion

Income from Other Sources may seem like a grey area, but understanding its nuances is essential for proper tax compliance. It is important to note, if you’re issuing GST invoices for your income, it’s likely business income, not “income from other sources”. Whether it’s interest, lottery winnings, or gifts, each type has its own tax rule. By knowing what counts under this head and what deductions are available, you can file your returns accurately and avoid paying extra taxes or penalties.