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IFOS: Income from Other Sources

by | May 4, 2024 | Income Tax | 0 comments

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Important Keyword: Dividend Income, Income Interest, Income Source, TDS.

Income from Other Sources (IFOS)

Income from Other Sources (IFOS) constitutes one of the five heads of income in the Indian taxation system. It encompasses any income that doesn’t fall under the purview of the other specified heads of income. For instance, income derived from gifts, dividends, and other similar sources is taxed under IFOS. This head of income serves as a catch-all category for taxable income that doesn’t fit neatly into other classifications.

Incomes covered under IFOS

Under the head “Income from Other Sources” (IFOS), various sources of income are taxable. Some of these sources include:

  1. Dividends from companies.
  2. Winnings from lotteries, crossword puzzles, races (including horse races), card games, gambling, betting, or similar games.
  3. Income by way of interest received on compensation or on enhanced compensation.
  4. Gifts received.
  5. Family pension.
  6. Different interest incomes, such as interest from post office savings accounts, bank savings accounts, bank fixed deposits, etc.
  7. Interest received from the Income Tax Department on refunds.
  8. Insurance commission.
  9. Income from letting out machinery, plant, or furniture.
  10. Income from royalty.
  11. Any sum received under a Keyman Insurance Policy, including a bonus.
  12. Director’s commission for standing as guarantor to bankers.
  13. Remuneration received by Members of Parliament.
  14. Income from sub-letting of house property by a tenant, etc.
  15. Agricultural income exceeding INR 5,000.

This list is not exhaustive, but it provides an overview of the various sources of income that fall under the IFOS category for taxation purposes.

Apart from the sources mentioned earlier, certain incomes are also taxed under the head “Income from Other Sources” if they are not taxed under the head “Profits and Gains of Business or Profession.”

These include:

  1. Contributions to funds for the welfare of employees received by the employer.
  2. Income from:
    • Interest on securities.
    • Letting out or hiring of plant, machinery, or furniture.
    • Letting out of plant, machinery, or furniture along with a building where both the lettings are inseparable.

These additional sources of income are subject to taxation under the head “Income from Other Sources” if they do not fall under the scope of business or professional income.

Taxability of Income from Other Sources (IFOS)

Certainly, here’s an overview of the tax treatment for various types of income falling under the head “Income from Other Sources”:

Gifts can encompass various forms, including monetary gifts, movable properties, or immovable properties, and their tax treatment can vary depending on the circumstances. Generally, gifts are taxable under the head “Income from Other Sources” and are subject to applicable slab rates.

However, there are exceptions to this rule:

  1. Exemption Limit: Gifts are exempt from tax if the aggregate value received during a financial year does not exceed INR 50,000. Additionally, any property received without consideration, with a total fair market value not exceeding INR 50,000 throughout the year, is also exempt.
  2. Gifts from Relatives: Gifts received from certain relatives on specific occasions are exempt. This includes gifts received on marriage, by way of inheritance, or under a will. Additionally, gifts received from local authorities, funds, foundations, educational institutions, hospitals, trusts, or charitable trusts are exempt.

Tax Treatment on Life Insurance Policy: Amounts received under a life insurance policy, including bonuses, are exempt from tax under Section 10(10D) of the Income Tax Act.

However, there are conditions to this exemption:

  1. Premium Limit: The exemption is available only if the premium paid for a financial year does not exceed 20% of the actual capital sum assured (10% for policies taken on or after April 1, 2012).
  2. Exemption on Death: Amounts received on the death of the policyholder are completely exempt from tax without any conditions.

Tax on Dividend Income: Dividend income is taxable under Income from Other Sources at applicable slab rates. Dividends received from cooperative societies or foreign companies are fully taxable.

Tax on Interest Income: Interest income from various sources like fixed deposits, recurring deposits, savings accounts, or post office deposits is taxable. Banks deduct TDS at 10% (20% if PAN is not provided) if the total interest income exceeds INR 10,000. However, interest earned on tax-free bonds, Public Provident Fund (PPF), and certain post office savings accounts is exempt up to specified limits.

Tax on Commission Income: Commission or brokerage income received from sources other than business is taxed as Income from Other Sources at slab rates.

Can I claim any expenses from Incomes from Other Sources (IFOS)?

Under Income from Other Sources, taxpayers can claim certain deductions as per Section 57 of the Income Tax Act. However, there are specific deductions that cannot be claimed under this head, as outlined in Section 58 of the Income Tax Act:

  1. Section 40A: Any amount mentioned as per Section 40A cannot be claimed as a deduction under Income from Other Sources. Section 40A deals with expenses or payments made in certain cases where the expenditure is disallowed if it exceeds a specified limit.
  2. Personal Expenses: Deductions for personal expenses are not allowed under Income from Other Sources. This includes expenses incurred for personal purposes or non-business-related activities.
  3. Wealth Tax: Amounts paid towards wealth tax cannot be claimed as deductions under this head. Wealth tax is a tax levied on the net wealth of individuals and HUFs exceeding a specified limit.
  4. Expenses from Winnings: Expenses associated with winnings from lotteries, races, crossword puzzles, games, gambling, or betting cannot be claimed as deductions under Income from Other Sources. This includes any costs incurred in participating in such activities.
  5. Salary Payable Outside India: Deductions cannot be claimed for salaries payable outside India on which tax is not deducted at the source. This pertains to salaries earned outside India that are not subject to tax deduction at source (TDS).
  6. Interest Payable Outside India: Similarly, any interest subject to tax that is payable outside India cannot be claimed as a deduction under Income from Other Sources. This applies to interest payments made outside India that are not subject to TDS.

Read More: Exempt Income u/s 10 of the Income Tax Act

Web Stories: Exempt Income u/s 10 of the Income Tax Act

Official Income Tax Return filing website: https://incometaxindia.gov.in/

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