Chapter 8 : Income from Other Sources (Section 56 to 59) Advance Direct Tax and Service Tax [Sub code : 441]

Transcription

1 Chapter 8 : Income from Other Sources (Section 56 to 59) Advance Direct Tax and Service Tax [Sub code : 441]

2 Learning Objectives Income from Other Sources Deductions from Income from other Sources Conditions to be Fulfilled for Claiming the Deductions Certain Amounts not Deductible (Section 58) Profits Chargeable to Tax (Section 59) Chapter 8 : Income from Other Sources 2

3 Income from Other Sources Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in Section 14 Dividends, to the extent not exempted from tax Any Winnings from Lotteries, crossword puzzles, races including horse racing, card games or any other games of any sort or from gambling or betting of any form or nature whatsoever income by way of interest on securities, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession" Chapter 8 : Income from Other Sources 3

4 Contd Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head "Profits and gains of business or profession Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy if such income is not chargeable to income-tax under the head "Profits and gains of business or profession" or under the head "Salaries Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession"; Chapter 8 : Income from Other Sources 4

5 Contd Where any sum of money exceeding Rs.25,000/- is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, the whole of such sum Where an individual or Hindu undivided family receives from any person or persons on or after the 1 st day of October, 2009, any Gift in cash or kind exceeding Rs. 50,000/- without consideration Income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A Chapter 8 : Income from Other Sources 5

6 Gift in Cash or Kind exceeding Rs. 50,000/- Where an individual or Hindu undivided family receives, in any previous year, from any person or persons on or after the 1 st day of October, 2009, - Any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; Any immovable property, - Without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration; Chapter 8 : Income from Other Sources 6

7 Contd Any property, other than immovable property, - Without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; For a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration will chargeable to tax under the head Income from Other Sources. Chapter 8 : Income from Other Sources 7

8 Contd This clause shall not apply to any sum of money or any property received in cash or kind From any relative; or On the occasion of the marriage of the individual; or Under a will or by way of inheritance; or In contemplation of death of the payer; or From any local authority From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution Chapter 8 : Income from Other Sources 8

9 Some instances of Income from Other Sources Where a company, invested its share capital in banks pending commencement of business, interest received was taxable as its income from other sources and not as business income Tax on salary of assessee borne by payer, for whom assessee was working under a contract, under a legal obligation, was assessable as income of payee under "other sources Where the liquidator realized certain amounts by way of sale of the assets of the company in liquidation and invested the amounts in interest-bearing deposits, he was merely realizing the assets of the company and could not be considered as carrying on any business of the company; hence, interest earned on the deposit would be assessable as 'Income from other sources Gratuity received by a director who, under the relevant contract, is not an employee or servant of the company, is assessable as income from other sources Chapter 8 : Income from Other Sources 9

10 Contd Interest received from Government under section 214 for any of the tax refunds is taxable under the head 'Income from other sources Interest received by an employee on his own contributions to an unrecognized provident fund is assessable under the head 'Income from other sources Where the assessee's business has not commenced, amounts realized by assessee by sale of tender forms and empty bags would be capital receipts and cannot be brought to tax in the assessee's hands as 'income from other sources Family pension, to the extent not chargeable to tax Chapter 8 : Income from Other Sources 10

11 Deductions from Income from Other Sources Nature of Income Dividends (other than referred to in section 115-O) OR Interest on securities Any sum received by the assessee from his employees to any PF, Superannuation or ESI fund Income from Machinery, Plant & Furniture belonging to assessee and let on hire, if the income is not chargeable under the head Profit and gains of business or profession Where an assessee let on hire machinery, plant or furniture belonging to him and the letting of building is inseparable from the letting of said machinery, plant or furniture, if the income is not chargeable under the head Profit and gains of business or profession Extent of Deduction Available Any reasonable sum paid by way of commission to a banker to realize such dividend or interest Amount credited by the assessee to the employee s account in the relevant fund on or before the due dates Where premises occupied as Tenant Rent paid + Repairs & Maintenance Other than Tenant Actual amount paid by him for Rent, Rates, Taxes, Repairs & Maintenance, Insurance Premium etc. + Depreciation Actual amount paid by him for Rent, Rates, Taxes, Repairs & Maintenance, Insurance Premium etc. + Depreciation Chapter 8 : Income from Other Sources 11

12 Contd Nature of Income Extent of Deduction Available In case of Income in the nature of Family Pension Deduction of % of such income Rs. 15,000/- Whichever is Lower OR Deduction of Residuary Category Any other expenditure incurred Income by way of interest received on compensation or enhanced compensation Such deduction of expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. A deduction of 50% of such income Chapter 8 : Income from Other Sources 12

13 CONDITIONS TO BE FULFILLED FOR CLAIMING THE DEDUCTIONS The expenditure must have been incurred solely and exclusively for the purpose of earning income or making profit. The expenditure should not be in the nature of a capital expenditure. The amount in question should not be in the nature of personal expenses of the assessee. The expenditure should be incurred in the accounting year. There must be a clear nexus between the expenditure incurred and the income sought to be earned. The dominant purpose of the expenditure incurred must be to earn income. Chapter 8 : Income from Other Sources 13

14 CERTAIN AMOUNTS NOT DEDUCTIBLE Any personal expenses of the assessee; Any interest chargeable under this Act which is payable outside India on which tax has not been paid or deducted under the Income Tax Act Any payment which is chargeable under the head "Salaries", if it is payable outside India, unless tax has been paid thereon or deducted there from Any sum paid on account of Wealth-Tax No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever Chapter 8 : Income from Other Sources 14

15 PROFITS CHARGEABLE TO TAX The following income would be treated as Income under the head Income from Other Sources under appropriate circumstances just as they would be treated as business income while computing "Profits and gains of business or profession" Remission or cessation of trade liabilities Successor of a business obtaining any benefit in respect of deduction availed by the predecessor. In case of power-generating/distributing units, the balancing charge in respect of any building, machinery, plant or furniture Bad debt written off (and allowed) and subsequently recovered - is treated as income of the previous year in which the sale took place Remission or cessation of trade liabilities of discontinued business Chapter 8 : Income from Other Sources 15