67 Rise of American Accounts. "Hollywood ".

Income from other sources

All incomes chargeable to tax under this head are divided into 2 categories.

A. General incomes.

B. Specific incomes .

GENERAL INCOMES [ Section 56(1) ]

.Agricultural income from land situated outside India .

.Receipts from a person other than employer .

.University remuneration or Examinership fee received by a non-professional.

.Salary received by M.P/ M.L.A./ M.L.C. but Daily allowance received by them is fully exempted.Constituency allowance received by M.P./M.L.A./M.L.C. is fully exempted.

.Family pension received by the members of the family of deceased employee .

.Interest on own contribution to unrecognised provident fund in case of refund only.

. Income from sub-letting,Ground rent,vacant urban piece of land , non-agricultural land and land which is not appurtenant to the building .

. Royalty for writing books,Mining Royalty .

.Agency commission received by agents of LIC,UTI,Mutual Fund and Post office where it is not a regular profession.

.Meeting fee,Director's fee or Sitting fee.

.Remuneration received for writing articles by a non-journalist.

.Remuneration received for delivering lectures .

.Withdrawal from National Saving Scheme 1986- Principal amount or interest provided deduction u/s 80CCCA was claimed.

.Repurchase of units acquired u/s 80CCB-Principal amount is fully taxable.

.Commission received by a director for standing as guarantor.

.Remuneration received for rendering consultancy services.

. Commission received by a director for underwriting the shares of a new company .

.Gratuity received by a non employee director.

.All types of casual incomes except winnings from lotteries , races , crossword puzzles card games , gambling and betting which are taxable u/s 56(2) . Expenses are allowed to be deducted out of casual incomes taxable u/s 56(1).

.Any annuity or pension received from LIC or other insurer u/s 80CCC.

.All types of interests except interest on securities which is taxable u/s 56(2).

Examples of taxable interests u/s 56(1)

.Bank interest

.Interest on personal loans and deposits

.Interest on postal savings scheme except on P.O.S.B.A/c whose interest is fully exempted.

.Interest on NSS 1992

.Interest on security deposits

.Interest on National deposit scheme

.Interest on income tax and sales tax refund

.Interest on bonds or debentures issued by an individual club,society,HUF,Firm or a foreign authority

.Interest on delayed payment of compensation

.Interest on units of UTI and mutual funds

.Any sum of money received as an advance or otherwise in the course of negotiation for transfer of a capital asset and forfeited due to non-transfer of such capital asset

.Income from undisclosed source

SPECIFIC INCOMES [Section 56(2) ]

Dividend

It can be received on equity or preference shares of a company,units of UTI or other mutual funds or share of a Cooperative Society.

(a) Dividend is exempted if it is declared or distributed by an Indian company on or after 1-4-2003 Interest or dividend on units of UTI or other mutual funds is also fully exempted.

(b) It is fully taxable if it is declared or distributed by a foreign company , or a cooperative society.

(c) Bonus shares allotted to preference share holders shall be deemed as dividend and their market price shall be taxable.

(d) In case a person who has substantial interest in the affairs of a Pvt.Ltd Company takes loan. From such company whose business is not money lending , such loan is deemed as advance divided up to accumulated reserves of the company. If such loan is adjusted against future dividend, it will not be taxable. A person is said to have a substantial interest if he, his spouse and minor child all together hold 10% or more shares in such Pvt.Ltd.Company.

(e) Deemed dividend is fully taxable.

Interest on Securities

Security is a document acknowledging debt taken by a specific authority from general public , secured in some manner and transferable. The Central Govt, Local authority , State Govt, statutory corporation or a company may issue a security. It may be issued under the name of Bond,Loan,Paper,Debenture,Certificate or a Security.

Rules Regarding Accural of Interest

(1) Interest accrues on face value only and not on price paid.

(2) It does not accrue on day-to-day basis. It accrues on a fixed date after fixed interval ,which is generally six months.

(3) It accrues on the name of that person on whose name securities stand on the date of accrual.

(4) Full interest for the specified period accrues on the name of the holder on the due date.

(5) In case of sale or purchase of securities only that installment will accrue on the name of seller, which is due before date of sale, and on the name of buyer, which is due after the date of purchase.

Taxability of Interest

(1) Interest is taxable on due basis whether received or not.

(2) It is taxable in the hands of that person on whose name it accrues.

(3) Full interest is taxable in the hands of the holder. No deduction of any interest paid to seller.

(4) Tax at following rates is deducted at source.

Types of Securities

(1) Interest on these securities is fully exempted u/s 10(15). Hence interest on these securities is not added in total income. These securities are :

(a) Interest on National Plan Certificates.

(b) Interest on National Defence Certificates.

(c) Interest on Post Office Cash Savings Certificates.

(d) Interest on National Relief Bonds.

(e) Interest on Treasury Savings Certificates.

(f) Interest on Capital Investment Bonds.

(g) Interest on National Saving Certificate

(h) Interest on Special Bearer Bonds.

(i) Interest on any other Bond or security issued by Central or State Govt. or statutory corporation provided it is so notified u/s 10(15).

(2) Tax free Securities

(a) Tax free Govt.Securities-These are not issued these days. The word tax free for Govt. Securities Tax-free is deemed to be exempted.

(b) Non-Govt . securities - Tax on interest of these securities is paid to the Govt. by issuing authority. Assessee gets full interest as is mentioned on the face of a security and it is treated as net interest. It has to be grossed up.

(3) Less Tax Securities. It is the most common form of securities in India. Tax is deducted at source.

Grossing up of interest

In case it is mentioned that :

(a) amount of interest received.

(b) net amount of interest.

(c) interest after deduction of tax.

(d) interest collected by bank ,or

(e) Interest on tax free non-government securities.

In case of interest on securities issued by foreign government interest is not grossed up as no tax is deducted at source in India on such income.

Deductions out of Interest on Securities

(a) Bank Commission or Collection Charges - Fully allowed.

(b) Bank Commission on sale or purchase of securities is not allowed as deduction being capital expenditure.

(c) Interest on loan taken:

(1) Loan must be taken to purchase a security only,

(2) The security should be such whose interest is not exempted,

(3) It is calculated from the date of taking loan till the date of repayment or end of previous year whichever is earlier.

(4) No deduction of interest if it is paid outside India to non resident without deducting tax at source.

(5) Full interest is allowed as deduction even if there is less income or no income from that security.

Letting of Plant and Machinery

Income from letting of plant and machinery where it is not regular business.

Composite rent

Income from letting of building along with plant and machinery and furniture if rent is inseparable.

Contribution of employee

Employee's contribution to provident fund or Employee's State Insurance Fund is deemed as income of the year.

Tax treatment of Gifts received in the hands of Individual or HUF w.e.f. 1-10-2009 [ Section 2(24)(15) ] and [ Section 56(2)(7) ]

(A) Gift of Money ( Monetary Gift ) .w.e.f. 1-10-2009, where any sum of money exceeding Rs 50,000 in aggregate in any previous year is received by an individual or HUF without consideration from any person or persons , the whole of such sum of money shall be treated as income under the head ' Other Sources ' of the recipient.

Thus, Taxable Income = The whole of such sum of money.

Important Points:

(1) Gift of money includes not only cash gift but also gift by way of cheque ,draft , fixed deposit or NSC etc.

(2) Such sum of money must have been received without consideration.

(3) The aggregate amount of monetary gifts received during the previous year shall be considered.

(4) Such monetary gifts may be received from a person or from a person or from more than one person.

(B) Gift of Property.

(1) Gift of Immovable property received without consideration. Where any immovable property is received by an individual Rs 50,000, the stamp duty value of such immovable property shall be an income under the head " Other Sources ".

Thus, Taxable Income = The stamp duty value of such immovable property.

(2) Gift of immovable property received for inadequate consideration by an individual or HUF [ Section 56(7)(b) ] [ w.e.f.A.Y.2014-15 ]

Where any immovable property is received for consideration which is less than the stamp duty value of the property by an amount exceeding Rs 50,000 , the stamp duty value of such property as exceeds such consideration, would be charged to tax in the hands of individual or HUF as income from other sources.

Taxable Income = Stamp duty value - Actual consideration.

Where the date of agreement and the date of registration are not the same , the stamp duty value on the date of agreement shall be considered.

Important Points :

(1) Immovable property refers to land or building or both ( Extracts from the meaning of property ).

(2) Such immovable property must have been received without consideration . Thus, where immovable property is purchased/acquired for a consideration which is less than the stamp duty value of such immovable property nothing shall be taxable in the hands of recipient or purchaser ,what so every may be the amount of difference, even if the difference between stamp duty value and the actual consideration paid is more than Rs 50,000.

(3) Such immovable property must be a capital asset [ as defined in Section 2(14) ] in the hands of recipient . Thus, if the immovable property does not constitute a capital asset in the hands of receipient individual or HUF, it would not be taxable in such a case, whether such receipt is without adequate consideration or for in adequate consideration.

(4) The stamp duty value limit of Rs 50,000 is applicable for each immovable property received.

(5) Stamp duty value means the value adopted or assessed or assessable by any authority of the Central Government or a state government for the purpose of payment of stamp duty in respect of an immovable property.

(6) If the assessee disputes the valuation made by the stamp duty authority, the Assessing Officer may refer the valuation to a valuation officer.

(B-2) Gift of Property (specified) other than Immovable Property.

Case 1 : Without consideration. w.e.f. 1-10-2009, where any property or properties (specified) other than immovable property is received by an individual or HUF from any person without consideration , the aggregate fair market value of which exceeds Rs 50,000 , the whole of the aggregate fair market value of such property shall be taxable as income under the head ' Other Sources'.

Thus , Taxable income = The whole of the aggregate F.M.V. of such property.

Case 2 : For inadequate consideration. w.e.f. 1-10-2009, where any property or properties ( specified ) other than immovable property is received by an individual or HUF from any person for a consideration which is less than the aggregate fair market value of such property by an amount exceeding Rs.50,000, the excess of aggregate fair market value of such property over such consideration shall be taxable as income under the head other sources.

Thus, Taxable Income = The aggregate FMV of property - Actual consideration.

Important Points :

(1) Property other than immovable property includes :

(a) Shares and securities.

(b) Jewellery.

(c) Archaeological collections.

(d) Drawings.

(e) Paintings.

(f) Sculptures.

(g) Any work of art ,or

(h) Bullion.

Thus, movable property does not include motor car , furniture , household equipments , clothes etc.

(2) Such property must be a capital asset [ as defined in Section 2(14) ] in the hands of recipient . Thus, if the property does not constitute a capital asset in the hands of recipient individual or HUF , it would not be taxable in such a case , whether such receipt of property is without consideration or for inadequate consideration.

(3) The aggregate amount of gift of above specified property/properties from one or more person shall be considered.

(4) The fair market value of property other than immovable property shall be determined as per rule 11 UA in the light of certain terms explained in Rule 11U.

Non-applicability of Section 56(2)(7) i.e., cases in which gift of money or of property ( immovable or other specified property ) shall not be taxable.

Any sum of money or property received:

(a) from any relative, or

(b) on the occasion of marriage of the individual .

(c) under a will or by way of inheritance .

(d) in contemplation of death of the payer.

(e) from any local authority.

(f) from any fund or foundation, a university or other educational institutions or hospital or other medical institution or any trust or institution referred in section 10(23C).

(g) from any trust or institution registered u/s 12AA.

Meaning of Relative : Relative means.

(1) Spouse of the individual.

(2) Brother or sister if the individual.

(3) Brother or sister of the spouse of the individual.

(4) Brother or sister of either of the parents of the individual.

(5) Any lineal ascedant or descedant of the individual.

(6) Any lineal ascedant or descedant of the spouse of the individual.

(7) Spouse of the person referred to in clause (2) to (6).

Meaning of term ' Property ' : Property means the following capital assets of the assessee, namely:

(1) Immovable property being land or building or both .

(2) shares and securities.

(3) jewellery.

(4) archaeological collections.

(5) drawings.

(6) paintings.

(7) sculptures.

(8) any work or art ,or

(9) bullion.

Income from letting of plant,machinery or furniture.

If an assessee owns plant, machinery or furniture and it is let out to some other person , the rent so received by the assessee shall be chargeable to tax under this head provided letting of plant and machinery is not the business of the assessee.

If the assessee is engaged in the business of letting out plant, machinery or furniture , therent so received shall be chargeable to tax under the head ' profits and Gains of Business or Profession '.

Taxability of certain amount of security premium received by a closely held company as income under head Other Sources [ Section 56(2) (7b) ] [ w.e.f. 1-4-2013 ]

Where 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 shall be chargeable to income-tax under the head " Income from other sources ".

Thus, Taxable security premium = Aggregate consideration received - Fair market value of shares.

Exception : Nothing shall be taxable in above case where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Income from letting of plant, machinery or furniture with building.

The rent from a property is taxable under the head ' Income from House Property ' but when an assessee lets out plant, machinery or furniture which is inseparable from building , the rent of building so received will be taxable under the head ' Income from Other Sources '. The letting of plant, machinery or furniture should not be the business of the assessee.

Employee's contribution to provident fund or employee's insurance (ESI) fund is deemed as income of the year.

DEDUCTIONS ALLOWED U/S 57

1. Bank commission or collection charges to realise interest/dividend-actual amount spent by the assessee is fully allowed.

2. Interest on loan taken to acquire an asset whose income is taxable under this head-Full interest is allowed as deduction even if there is less income or no income from such asset.

3. A Standard deduction @ 1/3rd or Rs 15000 p.a which ever is less is allowed out of family pensiom.

4. Depreciation, expenses on current repairs , fire insurance premium, ground rent etc . relating to those assets which are let out under this head. ( Proportionate Expenditure )

5. Any other expenditure incurred to earn an income taxable under this head provided it is not of personal or capital nature.

6. Any amount deposited with appropriate authority before due date as employee's contribution towards PF or ESI Fund.

BOND WASHING [Section 94]

1. In case a person sells his securities to another person a few days before the accrual of interest and purchases them back after the date of accrual , and Assessing Officer is satisfied that the transaction has been made with the intention of avoiding tax , such interest shall be deemed as income of the transferor and not transfaree.

2. In case a person has any beneficial interest in any securities and as a result of some arrangement either no income is received by such person or the income received by him is lower than the amount which he would have received , the interest , which would have accrued on such securities had there been no such arrangement , would be included in the income of person making such arrangement.

3. The above provisions will not be applicable , if such person proves to the satisfaction of the Assessing Officer that the transaction has not resulted into any avoidance of tax or if at all there was some avoidance it was exceptional as there had not been any avoidance of tax in any of three preceding previous year.

Forfeiture of advance received

In case there are negotiations regarding the sale of a capital asset and any sum of money received as an advance shall be treated as ' Income from other sources ' if such negotiations failed any money received as advance had been forfeited.scary.