The Income Tax Act has five heads of income, with ‘Income from Other Sources’ (IFOS) being one. It can be considered as a residual head of income as it covers income which is outside the scope of other income heads. IFOS includes dividend from companies, interest incomes, income from royalty, etc. So, it is pertinent to look at the taxability on some of these incomes. under ‘Income from Salary’, while any benefit/gift/perquisite arising from business or profession is taxable under ‘Profit & Gain’ under business or profession. Apart from these, any gift/asset acquired by a taxpayer is taxable under IFOS. If a taxpayer has received any monetary gift without consideration and the aggregate Fair Market Value (FMV) is more than Rs.50,000, then the whole amount is taxable as other sources. If the taxpayer has received a monetary gift with inadequate consideration and if the aggregate FMV is more than Rs.50,000, then difference between the FMV and the actual consideration is to be declared.
In case of immovable property, if it is received without consideration and the stamp duty value exceeds Rs.50,000, the stamp duty value of such property shall be chargeable to tax as other sources, whereas if such property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000, the stamp duty value of such a property as exceeds the actual consideration shall be taxable.
There shall be no tax if such monetary gifts or property is received on marriage, from any relative (spouse, brother, sister or spouse’s brother, and sister of the parents of the recipient, etc.), or under any will or inheritance, in contemplation of death.
Another popular stream of income under IFOS is dividends. The meaning of ‘dividend’ has a broader coverage and includes even distribution of assets to the shareholders at the time of liquidation as well as any distribution on account of reduction of share capital of the company. Since the liability of paying tax on dividends received is on the taxpayer, the taxpayer has to declare this income under ‘Income from other sources’ and pay tax on it as per slab rate. In the case of Keyman insurance policy undertaken by a company for its key employees, if the amount is received by the insured, which is the key employee and not the company, such a sum received on the maturity of Keyman Insurance Policy shall be taxable under ‘Income from other sources’. Taxability of interest income varies depending on the nature of income. For instance, savings bank account interest is only taxable in excess of Rs.10,000, while interest on Public Provident Fund (PPF) is exempt and interest earned on the employee’s contribution to the PF account will be taxed if it exceeds Rs.2.5 lakh in a financial year and the interest earned on Post Office Saving Bank Account is exempt to the extent of Rs.3,500 in case of individual account and Rs.7,000 in case of joint account.
Any one-time income such as winnings from lotteries, crossword puzzles, horse races, card games or betting of any kind is considered IFOS and taxable. Taxpayers can also claim certain other deductions under IFOS. For instance, in the case of family pension, deduction of 1/3rd of such income or Rs.15,000, whichever is less, is allowed. The term ‘family pension’ means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of the employee’s death.
The taxpayer is required to fill in the details of IFOs under schedule OS such as gross interest income, dividends, sum of money received as a gift if exceeding Rs.50,000, etc.
The IT Act allows adjusting losses from capital assets and business against other incomes in a particular year. Incomes that go under IFOS head cannot be used to set-off losses under the ‘capital gains’ head. Income from winnings from lottery, crossword puzzles, races (including horse race) and any other games or gambling of any kind or nature, cannot be set off as well.
About the Author - Amit Maheshwari is tax partner, AKM Global, a tax and consulting firm. Yeeshu Sehgal, head of tax markets, AKM Global, contributed to this article.
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