Understanding Tax From Other Incomes

December 22, 2011 by  Filed under: Taxes 

Most of us are familiar with the process for income tax filing where we generally show income from a constant or regular source. This income is taxed as per the tax bracket we fall into. There are other incomes which do not fall into any defined criteria and hence they are grouped under “other incomes”. This is also known as residuary head of income.

The other income category is very large. It can include everything that doesn’t fall in the four main categories defined in the beginning of the form.

Income heads and other incomes

Typically income heads are defined as:

  • Salary
  • Business or proprietorship
  • Capital gains
  • Rentals

Any other income which doesn’t fall into these categories comes under the generic umbrella of “Other Incomes”.

Different types of incomes under the “other income” category

This list is quite exhaustive. Here are some of the most common income groups.

Dividend from foreign firms –

Dividends by Indian firms are not taxable from shareholders because the dividend distribution tax is already applied on the companies. However, if the dividend income comes from investment in foreign companies, this will be taxable.

From winning awards –

Since “Kaun Banega Crorepati” started beaming through the Indian channel, income under this head got noticeable interest by both people and income tax officials. Awards are taxable at the rate of 30%. Hence Sushil Kumar, who won 5 Crores in KBC will have to part with 1.5 Crores and some surcharge.

From gambling –

Lottery is a preferred way to gamble. In fact, many state Governments launch lottery schemes. The winner has to pay taxes from the bounty.

Interest accrued from bank deposits or securities –

Any income accrued because of interest on bank deposit is taxable.

From renting utilities –

The most typical example of this is renting of VCR and VCP in 80s where VCR/VCP owners used to rent it to their neighbours when they did not use it. The condition here is that this should not be the business of the person renting out VCR/VCP. If video rental is his or her business, this income will go under income from business and proprietorship.

From non-recurring work apart from regular job –

Many people look for opportunities to do something in their spare time. This income is taxable under “other income”. For example, a financial consultant working in a bank may be a visiting professor and earn some income.

From employer as part of the employee welfare program –

Some employers provide income as part of employee welfare initiatives. These initiatives may be recurrent or non-recurrent.

Received by legal heirs –

In case the primary recipient is not available, the income is received by the legal heir. This income is taxable under other incomes.

Deductibles

Deduction is also possible in `other income’ category. An individual can deduct the expenses incurred in earning the income. For example, if there are expenses in letting out the machinery or equipment, this expense can be deducted from the income received. Expenses can incur as a result of utilization of machinery, insurance premiums for the machine, regular servicing, and any other operational expenses that may occur. An individual can also deduct the depreciation from the income and pay taxes only on the profit.

In case of income received from dividends, the individual can deduct the amount spent in getting the dividend. The amount can be spent in broking charges, advisory, or any consulting services.

In case of a legal heir, deduction of 33% of the amount received is allowed.

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