5 Other Sources of Income You Must Pay Tax On: How To File ITR, Deductions And Exemptions
The Income Tax Department has classified income into various 5 heads – income from salary, capital gains, house or property, profits from businesses and income from other sources. Just like other income heads, income from other sources is also taxable. However, there are certain other income sources that are not taxable.
Read on to get the list of 5 other income sources that are taxable, how to file ITR (Income Tax Returns) and tax exemptions on certain other sources of income.
What is Tax on Income from Other Sources?
Tax on income from the other sources is the last head of the income sources that are taxable as per the Income Tax Act. Apart from salary, profits from business, income from house and capital gains, an individual with any other source of income must pay taxes.
What are the various other sources of income that are taxable? Here’s a list of 5:
- Interest Income from Savings Account
Notably, interest earned from your savings bank account qualifies as income from other sources. However, there is no provision for TDS on this income. That said, you should make sure to declare this under income from other sources while filing your tax return.
You can claim a tax deduction on the interest obtained from a savings account (and post office deposit) up to a certain limit under Section 80TTA. Residential individuals below 60 years and HUFs qualify for a tax deduction for interest income of up to Rs. 10,000.
- Interest from Fixed Deposit
The interest that you earn from Fixed Deposits (FDs) also qualifies as income from other sources. This income will attract a certain TDS which is deducted when the interest is earned. In other words, your bank will deduct the TDS when the interest is credited to you.
However, this TDS deduction is possible only when the total interest earned from all deposits at all branches exceeds Rs. 40,000 in one financial year. For senior citizens, this exemption limit is Rs. 50,000.
If your total income is less than the taxable limit, you can prevent TDS deduction on interest earned from FDs. You can do this by submitting Form 15G or 15H to the relevant banks. While Form 15G is for senior citizens, Form 15H is for all other taxpayers. In case you fail to submit these forms, you can ask for a refund while filing an IT return.
- Family Pension
If you are a nominee and collect a pension on behalf of a deceased member of the family, then this income is also counted under the Income from Other Sources. The government will deduct Rs. 15,000 or one-third of the pension you collect, whichever is lower, and add it to your income. You should pay the tax as per the applicable tax rate.
- Amount Received from Game Shows, Lotteries or as Gift
The money that you earn by winning a lottery, on online game shows, quizzes, etc. will be treated as income from other sources and taxed accordingly. The government will tax this income at a flat 30% rate. However, after the addition of cess, this will stand at 31.2%.
Other income sources also include movable or non-movable gifts (non-monetary or monetary) from relatives. However, it is only taxable if the amount exceeds Rs. 50,000 for HUFs or individuals receiving gifts after 1st October, 2009. Also, gifts received are not taxable if:
- Gift received as a wedding gift.
- Inherited gift.
- Gift from a terminally ill donor.
- Gifts from relatives, trusts or educational institutions as listed under Section 10(23C) and Section 12AA.
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- Dividend Income
The dividend comes with a broader significance in terms of income tax. It can mean any of the following:
- Any loan or advance that a company offers to its shareholders.
- Any distribution that a company makes to its shareholders for liquidation.
- Distribution of a company to its shareholders on reduction of capital.
- Distribution of debentures, bonus shares, etc., to preference shareholders.
- Any distribution of profits made by a company due to the release of its assets.
Dividends that you receive from a foreign company will be added to your taxable income and will be taxed as per the applicable slab. So, if you belong to the 30% tax slab, your dividend income will be taxed at 30%. There will be an additional health and education cess.
According to the Finance Act of 2020, dividends paid by an Indian company or mutual fund on or after April 1 2020, are liable to tax deduction. The normal rate of TDS stands at 10% if the dividend you receive is more than Rs. 5,000.
Income from Other Sources that are Not Taxable
An individual of 60 years of age or less or HUF, savings account interest up to Rs. 10,000 is tax exempted. Tax deductions on interest income earned from the following sources are allowed:
- Savings account with the post office.
- Bank savings account
- Savings account with a co-operative society with the banking business.
Expenses not Eligible for Deduction under Income from Other Sources
The following expenses do not qualify as income from other sources:
- Any kind of personal expenditure of the taxpayer
- Any interest that is payable outside of India and is eligible for a tax deduction in India on which tax is not deducted
- Expenditure you incur for making payment to a particular party that is considered to be excessive in relation to the fair market value
- Any payment more than Rs. 10,000 that you make towards a person in a mode other than cheque, bank draft, ECS, credit card, debit card, NEFT, IMPS, etc.
Filling Details of Other Income during ITR Filing
You need to disclose incomes from every source while filing Income Tax Returns (ITR) for a particular assessment year. You have to provide details of income from other sources in schedule OS. Here are some of the sections that taxpayers have to fill:
- Gross interest income
- Rental income from machinery, plants, etc
- Dividends
- Amount won from lotteries, puzzles, game shows
- Sum received as a gift in case it is more than Rs. 50,000
- Any other income chargeable at a special rate
Final Word
As a taxpayer, you should be aware of earnings that fall under the ‘Income from Other Sources’ head and the corresponding income tax for them. This will help you to pay the taxes accurately and file IT returns accordingly.
FFAQs on Tax on Other Sources of Income
Ans: As per tax laws in India, money that you receive from any relative is not taxable. Naturally, the money that you receive from your mother on the occasion of marriage will be free from taxation.
Ans: Individuals with an annual income that is more than Rs. 2.5 lakh has to mandatorily file income tax returns. In case your income is not more than Rs. 2.5 lakh and your bank has made TDS deductions, you can file for tax return and get a refund.
Ans: As per Finance Act, dividend received from an Indian company or mutual fund is taxable. If the total amount of dividend exceeds Rs. 5,000 in a financial year, you have to pay a TDS of 10%. You can claim an interest expense of 20% of the amount you earn as a dividend.
Ans: These interest incomes are classified under other sources. You have to pay the taxes according to the income tax slab that is applicable to you. Note that you can avail a deduction of up to Rs. 10,000 on interest from saving account and RDs.
Ans: Tax-saving fixed deposits have a lock-in period of 5 years. The amount that you invest in such FDs can be claimed as a deduction under Section 80C of the ITA. However, similar to regular fixed deposits, you have to pay tax on the interest that you earn through a tax-saving fixed deposit.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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