If you are puzzled, what is the exemption of interest income, you could avail under the head “income from other sources.” Here is the article for you.
Income under this head is chargeable under Section 56 of The Income Tax Act, 1961. The residuary head of income assessment under the income tax in India that the incomes not assessed under any other head are assessable under this head.
However, the following are a few assessable incomes under this head.
When a part of the company’s accumulated profits is distributed to the shareholder, it is called a dividend. Dividend income from shares is taxable in India, and it could be a dividend from an Indian company or a foreign company having its business in India. Such distribution could be a result of parting with accumulated profits.
Dividend Incomes are usually subject to TDS@10%. However, no TDS is required to be deducted if the dividend income does not exceed ₹5000. Any interest expense incurred to earn such a dividend is allowed as a deduction subject to the maximum of 20% of such income. However, the incidence of Surcharge on dividend income shall not exceed 15%.
Casual income means income like winnings from card games, lottery, race horses, or other shorts of similar games like betting or gambling. Such an income is assessable under the head of other sources and subject to tax@30% without any expense allowance. The payer of the lottery shall deduct TDS@30% only if the amount of interest exceeds ₹10000.
Interest Received on Enhanced Compensation
When the government of India acquires properties like land, buildings, or other assets under a scheme of property acquisition for a development project, the aggrieved party usually receives compensation in response to the acquisition. These types of acquisitions sometimes form a matter of court disputes for which, if compensation is enhanced, the aggrieved receive enhanced compensation along with interest; depending on the nature of the property, enhanced compensation is chargeable to tax under head Capital gain or business income. However, interest in enhanced compensation is subject to assessment under other sources.
Interest income from debt securities, fixed deposits, or sum of deposits whatsoever from which interest is received is subject to assessment under this head. Interest income could be further categorized into the following types –
Interest Income on Saving Bank Account Deposits
Interest from saving bank account deposits is assessable to tax under other sources. Such an interest could be earned from a post office savings bank account or with other scheduled banks. They may be subject to Tax Deduction at Source (TDS). However, you will also be eligible for a deduction of INR 10000 from interest income under Chapter 6A Deduction, specifically under Section 80TTA, If you are a person of age less than 60 years.
Interest Income on Recurring or Fixed Deposits
Interest on recurring deposits or fixed deposits is subject to assessment under the other sources. As a precondition, your deposits could be with any scheduled banks, corporative society, or other financial institutions like NBFCs. However, your interest income from deposits could be subject to a Tax Deduction of 10%.
If you want to avail of deduction under Section 80TTB, You need a senior citizen who is residing in India and of 60 years or more, and he does not opt for deduction under Section 80TTA. Such a senior citizen shall be eligible for a deduction of ₹50000 for interest earned on deposits on a savings bank account deposits or recurring or fixed deposits.
It is worth noting that, Only a person resident in India and an Individual having an age of 60 years or more are eligible for deduction under Section 80TTB. However, those ineligible under this section shall be eligible for deduction under Section 80TTA only regarding interest on Saving bank account deposits.
Saving Bank Account Post Office Deposits
Interest on saving bank account deposits are exempt up to ₹3500 in the case of individual savings and joint bank accounts. The said limit is extended to ₹7000. It is worth noting that this exemption is not a deduction, and thus, such individuals are also eligible for Deduction under Section 80TTA and 80TTB based on eligibility.
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Other Interest Income
Interest in Public Provident Fund (PPF) or other statutory constituted funds for employees are exempt from tax under this head.
Income from Owning and Maintaining Race Horses
If any person has income from owning and maintaining racehorses, such an income shall be taxable under the head of other sources, and the slab rate of income tax shall be chargeable.
However, if the assessee is engaged in owing and maintaining any other animal, his income shall be assessed as business income.
Family Pension Payments
Pension income received on behalf of a deceased shall be deemed to be the income of the heir and will be subject to tax assessment under this head. A standard deduction of one-third of such pension subject to a maximum of ₹15000 is allowed for such a Legal heir.
Income from other sources such as –
- Directors sitting fees
- Remuneration received by MLAs
- Rent from vacant land
- Agriculture income has sources outside of India
- Interest on delayed refund of Income Tax
- Advance money forfeited for a property acquisition
- Income from machinery let on hire which is not subject to assessment under business
- Incomes are not subject to assessment under any other heads like house property, capital gain, salary, and business income.
Income under the head of other sources is the residuary head of income assessment. The precondition is that income shall not be exempt under other provisions of the Income Tax Act, and it does not fall under any other heads. Thus, Incomes that are not assessable under other heads are subject to assessment under “Other Sources.” A handful of interest incomes are eligible for deductions and exempt from interest on post office saving bank deposits.
What is Income from Other Sources in an Income Tax Return (ITR)?
Income from Other Sources in an Income Tax Return (ITR) refers to income that doesn't fall under the four primary heads of income: salary, house property, business or profession, and capital gains. It includes various income sources like interest income, dividends and gifts, which are taxable under this category.
Examples of income from other sources include interest on savings accounts or fixed deposits, dividend income from investments, income from hobbies or miscellaneous sources and gifts exceeding Rs. 50,000.
Is there a specific exemption limit for income from other sources in ITR?
There isn't a specific exemption limit for income from other sources. Most income in this category is subject to taxation, but there are exemptions and deductions available that can reduce the taxable amount.
What are some common exemptions available for income from other sources?
Common exemptions include the deduction of up to ₹10,000 on savings account interest under Section 80TTA and exemptions on certain gifts received on occasions like marriage or from relatives. However, these exemptions have specific conditions and limits.
Can I claim deductions against income from other sources?
Yes, you can claim deductions against income from other sources. For example, you can claim deductions under Section 57 of the Income Tax Act for expenses incurred to earn that income. However, specific rules and conditions apply.
Is rental income considered income from other sources, and how is it taxed?
Rental income is not considered income from other sources as it falls under the head “income from house property” in the ITR form.