As per the Income Tax Act, 1961, there are five heads of income sources. One such head is ‘Income from other sources.’ The earnings from sources that cannot be included under any other four categories, i.e., salary, income from house property, gains from business and profession, and income from capital gains and profits, are included under the ‘income from other sources’ head. The income from other sources is taxable on a cash or accrual basis.
Generally, the taxable income under the ‘other income source’ head is computed as per the accounting method assesse follows. It could be on a cash or accrual basis. The exceptions to this calculation are the income you earn from dividends and interest. Whatever accounting method the assessee follows, they must declare the income earned from dividends and interest in the previous and pay the taxes accordingly.
Some of the standard income inclusions under the ‘other income sources’ head include –
Income earned through dividends from cooperative societies and foreign companies is taxable under Section 2(22)(e) of the Indian Income Tax Act. However, dividends from investments in shares of Indian companies are exempt u/s 10(34).
If you win over Rs. 10,000 in a lottery, race, game, betting, gambling, puzzles, etc., they are taxable.
Income earned through interest on investments is taxable. However, you can claim 50% of this income as a deduction.
Monetary and non-monetary gifts received from individuals and HUFs (Hindu Undivided Families) are taxable if the total amount received during the previous year is more than Rs. 50,000. It applies only to gifts you received after October 1st 2009.
Calculating income tax on earnings from other income sources
Let us understand tax calculations on other income sources with an example.
Mr Ashok Gupta earned an income of Rs. 50,000 as dividends from investment in shares in the previous year. He seeks help from his son on how to include it in his income tax return. His son goes through the list of companies that Mr Gupta has invested in and finds that he has invested only in the shares of Indian companies, and informs him that the dividends earned are not taxable.
Mr Gupta also earned an income of Rs. 1 lakh as interest on the fixed deposits he holds at different banks. His son informs him that the interest earned is taxable income, and he must declare it in his tax returns ‘other income sources’ head. Rs. 1 lakh will be added to his total annual taxable income, and he must pay the tax as per the tax bracket he falls under.
Mr Gupta asks his son if he has to pay taxes on the money he received in the previous year from a generous neighbour who gifted him a cheque of Rs. 60,000 on the birth of his grandson. His son suggests that the amount is taxable as per the tax laws.
These examples highlight the exemptions and taxable income classified under other income sources. By knowing the type of income, the income source precisely, and when you receive the income, you can easily calculate income tax on other income sources.
Calculating the taxes manually can be overwhelming, and there is always a risk of human error. So, it is better to use the income tax calculator to do the calculation. It is an easy-to-use online tool that ensures accurate results and makes your tax filing a hassle-free experience.