Q3 (a) Explain taxability under the head “Income from other Sources “under section 56 illustrating

your answer with at least ten items taxable under this head.

Answer:

The Income Tax Act, 1961 provides for taxability of income under five heads. Out of the five heads,
four heads provide for taxability of specific incomes, i.e., income from salary, income from house
property, income from capital gains and income from business or profession. All other incomes
which do not fall within any of these heads will fall under the fifth head of income, i.e., Income from
other sources. Income from other sources is a residuary head of income and sweeps in all such
incomes which fall outside the purview of specific heads.

Items taxable under “income from other sources” head:

1. Dividend: Dividends usually refer to distribution of profits by a company to its shareholders.

However, under the Income-tax Act, dividend also includes distribution on liquidation of
company, reduction of share capital and any loan or advance given by a closely held company
to its shareholder.

2. Income from Lottery, Crossword Puzzle and Horse Race Winning: This includes 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.

3. Employee’s Contribution to Welfare Fund: The contribution received by the employer from
employee regarding EPF, ESI or superannuation fund, if not deposited to the employees
account under relevant fund on or before the due date under the relevant law then the same
income is taxable under other sources if it is not taxable as business income.

4. Interest on Securities: The income earned in the nature of interest on securities such as
debentures, bonds, Government securities are taxable in the hands of the assesse under the
head ‘income from other sources’. However, if the assesse is engaged in the business of
trading of securities then the same shall be taxable as business income.

5. Income from Letting out of Machinery, Plant or Furniture: Income earned from letting out of
machinery, plant or furniture belonging to assessee shall be taxable under the head “Income
from other sources”. Further, if an assessee lets out building along with these assets and
letting out of building is inseparable, then the income earned from letting out of building shall
also be taxable as income from other sources.

6. Sum Received under Key man Insurance Policy: Any sum received under ‘key man insurance
policy’ including the sum allocated by way of bonus on such policy is treated as income from
‘other sources’, provided the same is not taxable under the head “profits and gains of
business or profession” or under the head “salaries”.

7. Share Premium (Angel tax): If a company, not being a company in which the public are
substantially interested, receives, in any previous year, from any person being a resident, any
consideration for issue of shares that exceeds the face value of such shares, the aggregate
consideration received for such shares as exceeds the fair market value of the shares is
taxable as income from the other sources.
 8. Income on compensation or Enhanced Compensation: Income by way of interest received on
compensation or on enhanced compensation is taxable under the head other sources in the
year of receipt.

9. Taxability of Gifts: Any sum of money or property, whether movable or immovable, received
without consideration or for inadequate consideration is taxable under the head ‘income
from other sources’. However, gifts received from certain persons shall not be chargeable to
tax such as gifts received from relatives.

10. Compensation on Termination of Employment: Any compensation or other payment, due to

or received by any person, by whatever name called, in connection with the termination of
his employment or the modification of the terms and conditions relating thereto is taxable as
income from other sources.

3. b. Explain the scheme of deduction provided under section 57 while computing income
under the head Income from Other Sources illustrating your answer with suitable
examples.
Ans:
 Deductions from 'Income from Other Sources' [Section 57]
The income chargeable to tax under this head 'Income from Other Sources' is
computed after making the following deductions: In the case of dividend income
(and interest on securities: any reasonable sum paid by way of remuneration or
commission for the purpose of realising dividend or interest. In the case of income
in the nature of family pension: Rs. 15,000 or 33 1/3 % (33.33%) of such income,
whichever is lower. In the case of income from machinery, plant or furniture let on
hire: repairs to building [section 30(a) (ii)]; current repairs to machinery, plant or
furniture and insurance premium [section 31]; depreciation on building, machinery,
plant or furniture [section 32]; and unabsorbed depreciation [section 32(2)]. Any
other expenditure (not being a capital expenditure) expended wholly and
exclusively for the purpose of earning of such income. In the case of interest on
compensation or enhanced compensation: 50 per cent of such interest (applicable
from the assessment year 2010-11).

 Deductions for expenses from dividend income [Section 57(i) and 57(iii)]:
The following expenses can be claimed as deductions from gross dividend income
other than the dividends referred to in section 115-O:
Collection charges: any reasonable sum paid by way of commission or
remuneration to a banker or any other person for the purpose of realising the
dividend.
Interest on loan: Interest on money borrowed for purchasing the shares can be
claimed as a deduction. The interest can be claimed even if no income is earned by
way of dividend on such shares. It has been held by the Supreme Court that if the
expenditure has been laid out for the purpose of earning the dividend income then
 whether income is actually earned or not is immaterial and deduction on account of
interest can be claimed.
Since dividends referred to in section 115-O (i.e. dividends covered under section
2(22)(a), (b), (c) and (d) are exempt in the hands of the shareholders, no deduction
of any expense referred to in section 57 shall be allowed.
Any other expenditure: Any other expenditure, not being a expenditure of a capital
nature, expended wholly and exclusively for the purpose of making or earning such
income, can be claimed as a deduction.

 Deductions for expenses from Interest on Securities [Section 57(i) and (iii)]: As
discussed in the case of dividends, the following deductions will also be allowed
from the gross interest on securities:
Collection charges [Section 57(i)]: Any reasonable sum paid by way of commission
or remuneration to a banker, or any other person for the purpose of realising the
interest.
Interest on loan [Section 57(iii)]: Interest on money borrowed for investment in
securities can be claimed as a deduction.
Any other expenditure [Section 57(iii)]: Any other expenditure, not being a
expenditure of a capital nature, expended wholly and exclusively for the purpose of
making or earning such income can be claimed as a deduction.

 Deductions permissible from letting out of machinery, plant or furniture and

buildings [Section 57(ii) and (iii)]:
The following deductions are allowable:
Current repairs, to the premises held otherwise than as tenant.
Insurance premium against risk of damage or destruction of the premises.
Repairs and insurance of machinery, plant or furniture.
Depreciation based upon block of assets, in the same manner as allowed under
section 32 in the case of Income from Business and Profession subject to the
provisions of section 38 i.e. if it is partly let and partly used for own purpose,
deduction of expenses (including depreciation) shall be allowed to the extent it is let
out.
Any other expenditure: Any other expenditure, not being a expenditure of a capital
nature, laid out or expended wholly and exclusively for the purpose of making or
earning such income can be claimed as a deduction.

Q.3. (c) Income is always taxed on Gross basis and not on Net basis. Explain these terms

Gross and Net with reference to provisions relating to TDS.

TDS is abbreviated for tax deducted at source which was introduced to collect taxes at source from
where the income is generated. The government uses TDS as a tool to collect tax in order to
minimize tax evasion by taxing the income at the time it is generated rather than at a later date.
Person making specified payments such as salary, commission, professional fees, interest, rent, etc.
are required to deduct tax before making the payment to receiver and deposits the same with the
government, subject to the provisions under Income Tax Act.

WHO IS LIABLE TO DEDUCT TDS

Any person who is liable for audit u/s 44AB of Income Tax Act, 1961 are liable to deduct TDS as per
the relevant provisions. In this case, all Company and firms are required to deduct TDS.

There are various other circumstances on case to case basis where TDS are required to be deducted
even the person is not liable for audit.

TAN is mandatory for deduction of TDS

For deducting TDS, deductor need to have TAN which should be quoted in all the TDS Certificates,
challans, quarterly statements, correspondence, etc.

Consequence if deductor is not having TAN

 If the deductor does not quote the TAN as above, he may face penalty of Rs.10, 000.

Circumstances under which TAN is not required for deduction of TDS

Person deducting TDS on consideration more than 50 Lakhs for sale of immovable property other
than the agricultural property can use PAN instead of TAN.

 Failure to file TDS return within due date

Delay in filing of TDS return will attract penalty of Rs.200 per day till the date of filing of return.

The article has been written by Siddarth Agarwal, Practising Company Secretary carrying his practice
in Delhi-NCR and Guwahati. Due care has been taken to ensure the correctness of information.
However, this article cannot be construed as legal opinion and writer will not be liable for any claim.
Any suggestions are welcome to increase the effectiveness of the article. For detailed analysis on any
of the provision or for any query, writer can be contacted on the given contact details.

Q.3 (D) Compute Income under the head “Income from other Sources “from the following
information provided by Mr A for previous year ended 31st March,2020.

(i) Interest on debentures net of TDS @ 10 % 45,000/- (ii) Interest on PPF 16,500/-

(iii) Dividend recd from Tata Motors 5,000/- (iV) Honorarium 2,500/-

(v) Directors Sitting fees 10,000/- (vi) Interest recd by Minor son 22,000/-

(vii) Rent from Vacant Land 60,000/-

 COMPUTATION OF TAXABLE INCOME u/h IFOS for PY - 31/3/2020
Particulars Working notes ₹ ₹
Income From Other Sources      
Interest on debentures 45000/90*100   50000
Interest on PPF exempt u/s 10    
Dividend received from Tata Motors exempt u/s 10    
Honorarium     2500
Director's sitting Fees     10000
Interest received by Minor son   22000  
Less: Deduction u/s 10(32)   1500 20500
Rent of Vacant Land     60000
       
Net Income Taxable u/h IFOS     143000

3. e. Chapter VI-A of the Income Tax Act provides for deductions to be claimed from Gross
Total Income. Explain the provisions relating to following deductions 80C, 80D, 80DD,
80E, 80U, 80TTA.
Ans: Deductions allowed under the income tax act help you reduce your taxable income. You
can avail the deductions only if you have made tax-saving investments or incurred eligible
expenses. There are a number of deductions available under various sections that will bring
down your taxable income. The most popular one is section 80C of Chapter VI-A. Other
preferred deductions under chapter VI-A are 80D, 80DD, 80E, 80U, 80TTA and so on. Some
of the important deductions under chapter VIA are explained below:
 Section 80C: Deductions on Investments
You can claim a deduction of Rs 1.5 lakh your total income under section 80C. In simple
terms, you can reduce up to Rs 150,000 from your total taxable income, and it is available
for individuals and HUFs filing your Income Tax Return. The Income Tax Department
will refund the excess money to your bank account.
 Section 80D – Medical Insurance
Deduction for the premium paid for Medical Insurance
You (as an individual or HUF) can claim a deduction of Rs.25,000 under section 80D on
insurance for self, spouse and dependent children. An additional deduction for insurance
of parents is available up to Rs 25,000, if they are less than 60 years of age. If the parents
are aged above 60, the deduction amount is Rs 50,000, which has been increased in
Budget 2018 from Rs 30,000. In case, both taxpayer and parent(s) are 60 years or above,
the maximum deduction available under this section is up to Rs.1 lakh.
 Section 80DD – Disabled Dependent
Deduction for Rehabilitation of Handicapped Dependent Relative
Section 80DD deduction is available to a resident individual or a HUF and is available on:
a. Expenditure incurred on medical treatment (including nursing), training and
rehabilitation of handicapped dependent relative
b. Payment or deposit to specified scheme for maintenance of handicapped dependent
relative.
i. Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000.
ii. Where there is severe disability (disability is 80% or more) – fixed deduction of Rs
125,000.To claim this deduction a certificate of disability is required from prescribed
medical authority. From FY 2015-16 – The deduction limit of Rs 50,000 has been raised
to Rs 75,000 and Rs 100,000 has been raised to Rs 125,000.
 Section 80E – Interest on Education Loan
Deduction for Interest on Education Loan for Higher Studies
A deduction is allowed to an individual for interest on loans taken for pursuing higher
education. This loan may have been taken for the taxpayer, spouse or children or for a
student for whom the taxpayer is a legal guardian.
80E deduction is available for a maximum of 8 years (beginning the year in which the
interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There
is no restriction on the amount that can be claimed.

 Section 80U – Physical Disability

Deduction for Person suffering from Physical Disability
A deduction of Rs 75,000 is available to a resident individual who suffers from a physical
disability (including blindness) or mental retardation. In case of severe disability, one can
claim a deduction of Rs 125,000.
From FY 2015-16 – Section 80U deduction limit of Rs 50,000 has been raised to Rs
75,000 and Rs 100,000 has been raised to Rs 125,000.
 Section 80 TTA – Interest on Savings Account
Deduction from Gross Total Income for Interest on Savings Bank Account
If you are an individual or an HUF, you may claim a deduction of maximum Rs 10,000
against interest income from your savings account with a bank, co-operative society, or
post office. Do include the interest from savings bank account in other income.
Section 80TTA deduction is not available on interest income from fixed deposits,
recurring deposits, or interest income from corporate bonds.