'Income from Other Sources' and Its Computation (Section 56)

Scope of Income Chargeable under the head 'Income from Other Sources' (Section 56)

Taxability of Dividend Income [Section 56(2)(i)]

1. What is Dividend

2. Accumulated Profits for Distribution of Dividend

3. Disbursements by the Company to the Shareholders, to the extent of Accumulated Profits.

4. Deductions for Expenses from Dividend Income [Section 57(i) and 57(iii)]

5. Tax on certain Dividends received from Domestic Companies [Section 115BBDA]

6. Tax Treatment of Dividend in the hands of Shareholders

Winnings from Lotteries, Crossword Puzzles, Horse Races and Card Games [Section 56(2)(ib)]

1. Special rate of Income-tax in case of winnings from lotteries, crossword puzzles, races, etc. [Section 115BB]

2. Grossing up of Lottery Income, etc.

Interest on Securities under the head 'Income from Other Sources' [Section 56(2)(id)]

1. Meaning of Interest on Securities

2. Chargiability of Interest on Securities :

3. Accrual of Interest on Securities :

4. Grossing up of Interest on Securities :

5. Deductions for Expenses from Interest on Securities [Section 57(i) and (iii)]:

6. Avaoidance of Tax in respect of Interest on Securities (Section 94)

Income from Letting Out of Machinery , Plant or Furniture [Section 56(2)(ii)]

1. Income from Composite Letting of Machinery, Plant or Furniture and Buildings [Section 56(2)(iii)]:

2. Deductions permissible from Letting out of Machinery, Plant or Furniture and Buildings [Section 57(ii) and (iii)]:

Income from Composite Letting of Machinery, Plant or Furniture and Buildings [Section 56(2)(iii)]

If an assessee lets on hire machinery, plant or furniture and also building and letting of building is inseparable from letting of machinery, plant or furniture, income from such letting is taxable as income from other sources, if the same is not chargeable to tax under the head “Profits and gains of business or profession”.

On the basis of the judicial pronouncements, the following broad conclusions can be drawn:

Share Premium in excess of the Fair Market Value to be treated as Income [Section 56(2)(viib)]

Section 56(2)(viib) is applicable as follows –

Interest on Compensation or Enhanced Compensation [Section 56(2)(viii)]

As per section 145A(b), any interest received by an assessee on compensation or enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.

Further, as per section 56(2)(viii), income by way of interest received on compensation or on enhanced compensation referred to in section 145A(b) above shall be taxable under the head income from other sources in the previous year in which such interest is received.

Forfeiture of Advance Received for Transfer of a Capital Asset to be Taxed under the head "Income from Other Sources" [Section 56(2)(ix)]

According to section 56(2)(ix), any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset shall now be taxable under the head income from other sources if:

Income of any person to include not only gift of money from any person(s) but also the gift of property (whether movable or immovable) or property acquired for inadequate consideration [Section 56(2)(x), w.e.f. A.Y. 2018-19]

The following income, it shall be chargeable to income tax under the head "income from other sources" as per section 56(2)(x):

Amount Expressly Disallowed in computing the 'Income from Other Sources' (Section 58)

The following expenses are not deductible by virtue of section 58 in computing the income chargeable under the head 'Income from Other Sources' :

Deductions Allowed in computing the 'Income from Other Sources'(Section 57)

1. Deduction in respect of Employee’s Contribution towards Staff Welfare Schemes [Section 57(ia)]

2. Deductions permissible from Letting out of Machinery, Plant or Furniture and Buildings [Section 57(ii) and (iii)]

3. Standard Deduction in the case of Family Pension [Section 57(iia)]

4. Any other Expenses for Earning Income [Section 57(iii)]

5. Deductions for Expenses from Dividend Income [Section 57(i) and 57(iii)]

6. Deductions for Expenses from Interest on Securities [Section 57(i) and (iii)]

Taxable Incomes under the head 'Income from Other Sources' [Section 56(2)]

Sub-section (2) of Section 56 specifies 9 (nine) incomes which are always taxable under the head “Income from other sources”.