How ‘income from other sources’ is taxed

The Income Tax Act has 5 heads of earnings, with ‘Income from Other Sources’ (IFOS) being one. It might be thought-about as a residual head of earnings because it covers earnings which is outdoors the scope of different earnings heads. IFOS consists of dividend from firms, curiosity incomes, earnings from royalty, and so forth. So, it’s pertinent to take a look at the taxability on a few of these incomes.

Any reward acquired by an worker from an employer is taxable beneath ‘Income from Salary’, whereas any profit/reward/perquisite arising from enterprise or occupation is taxable beneath ‘Profit & Gain’ beneath enterprise or occupation. Apart from these, any reward/asset acquired by a taxpayer is taxable beneath IFOS. If a taxpayer has acquired any financial reward with out consideration and the mixture Fair Market Value (FMV) is greater than ₹50,000, then the entire quantity is taxable as different sources. If the taxpayer has acquired a financial reward with insufficient consideration and if the mixture FMV is greater than ₹50,000, then distinction between the FMV and the precise consideration is to be declared.

In case of immovable property, whether it is acquired with out consideration and the stamp obligation worth exceeds ₹50,000, the stamp obligation worth of such property shall be chargeable to tax as different sources, whereas if such property is acquired for a consideration which is lower than the stamp obligation worth of the property by an quantity exceeding ₹50,000, the stamp obligation worth of such a property as exceeds the precise consideration shall be taxable.

There shall be no tax if such financial items or property is acquired on marriage, from any relative (partner, brother, sister or partner’s brother, and sister of the dad and mom of the recipient, and so forth.), or beneath any will or inheritance, in contemplation of dying.

Another standard stream of earnings beneath IFOS is dividends. The which means of ‘dividend’ has a broader protection and consists of even distribution of property to the shareholders on the time of liquidation in addition to any distribution on account of discount of share capital of the corporate. Since the legal responsibility of paying tax on dividends acquired is on the taxpayer, the taxpayer has to declare this earnings beneath ‘Income from other sources’ and pay tax on it as per slab fee. In the case of Keyman insurance coverage coverage undertaken by an organization for its key workers, if the quantity is acquired by the insured, which is the important thing worker and never the corporate, such a sum acquired on the maturity of Keyman Insurance Policy shall be taxable beneath ‘Income from other sources’. Taxability of curiosity earnings varies relying on the character of earnings. For occasion, financial savings checking account curiosity is barely taxable in extra of ₹10,000, whereas curiosity on Public Provident Fund (PPF) is exempt and curiosity earned on the worker’s contribution to the PF account shall be taxed if it exceeds ₹2.5 lakh in a monetary 12 months and the curiosity earned on Post Office Saving Bank Account is exempt to the extent of ₹3,500 in case of particular person account and ₹7,000 in case of joint account.

Any one-time earnings similar to winnings from lotteries, crossword puzzles, horse races, card video games or betting of any sort is taken into account IFOS and taxable. Taxpayers may also declare sure different deductions beneath IFOS. For occasion, within the case of household pension, deduction of 1/third of such earnings or ₹15,000, whichever is much less, is allowed. The time period ‘family pension’ means an everyday month-to-month quantity payable by the employer to an individual belonging to the household of an worker within the occasion of the worker’s dying.

The taxpayer is required to fill within the particulars of IFOs beneath schedule OS similar to gross curiosity earnings, dividends, sum of cash acquired as a present if exceeding ₹50,000, and so forth.

The IT Act permits adjusting losses from capital property and enterprise in opposition to different incomes in a selected 12 months. Incomes that go beneath IFOS head can’t be used to set-off losses beneath the ‘capital gains’ head. Income from winnings from lottery, crossword puzzles, races (together with horse race) and every other video games or playing of any sort or nature, can’t be set off as nicely.

Amit Maheshwari is tax associate, AKM Global, a tax and consulting agency. Yeeshu Sehgal, head of tax markets, AKM Global, contributed to this text.

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