Free Shipping Across India | Pay Cash On Delivery | Call: 08030860796 (Mon - Sat)

search lense
Call Us : 08030860796
Let us call you

B Com 5th semister Income Tax Notes for Income from other sources

INCOME FROM OTHER SOURCES
I.F.O.S is the 5th head of income and it is also known as residuary head of income, where is any income which is chargeable to tax but does not find place under the first four heads of income (salary, H.P., Business / profession and capital gain) will be assessed to tax under the head "IFOS".
Ex. 1> Salary of M.P. or M.L.A.
2> Bank interest
3> Dividends received
4> Rent received from subletting etc.
Following incomes are chargeable to tax under the head IFOS U/S 56 (2) :
1> Dividends from non-domestic companies.
2> Casual income i.e. any winning from lotteries, cross word puzzles, races, horse races, card games, gambling or betting.
3> Interest in securities.
4> Rent from subletting
5> Cash gifts received from non-relative (above Rs. 50,000) on or after 1.4.2006.
6> Directors fees - director's sitting fees
7> Rent from letting of assets
8> Royalty - copy rights
9> Royalty - mines
10> Interest on bank deposits, loans overdrafts
11> Agricultural income - land situated outside India.
12> Ground rent
13> Salary of MP, MLA, MLC
14> Family pension
15> Income from undisclosed sources.
16> Insurance commission
17> Interest on URPF
18> Examination fees received by a teacher from a non-employer
19> Contribution received by an employer from his employees towards staff welfare scheme.
20> Any sum received under a keyman insurance policy including bonus.
21> Income from machinery, plant or furniture let on hire.
I. Deductions allowed under IOS :
1> Bank charges or commission for releasing dividend or interest on securities.
2> Interest on borrowings
3> Repairs / depreciation in case of letting assets
4> Maintenance
5> Standard deduction in case of family pension Rs. 15,000/- or 33 1/3 % of sum income which ever is less.
6> Any other expenditure to earn income.
II. Exempted Incomes :
1> Dividends from domestic company
2> Interest on PO S/B A/c.
3> Dearness allowances - MP, MLA etc.
4> Cash gifts received from relatives
5> Gifts received in kind
6> Gifts received on marriage (cash / kind)
7> Cash gift received Rs. 50,000 or less than Rs. 50,000/-
8> Interest received on specified Government bonds / securities.
9> Interest received on NSC
10> Interest on mutual funds / Government securities.
IMPORTANT NOTES :
1. DIVIDENDS :
It is a share of overall profits of the company received by the shareholder based on number of shares he holds.
a> Dividends received from a Domestic company including Indian company is exempt from tax U/S 10 (34)
b> Dividends received by a co-operative society or a foreign company is chargeable to tax under the head income from other sources.
Note : The term dividends include both interim as well as final dividends.
c> A domestic company shall pay tax on dividends declared by it at the following rates :
Income tax @ 12.5%
Surcharge @ 10%
Education cess @ 2% on (Income tax + Surcharge)
Therefore Total tax = 12.5% + (12.5 x 10 %) + ((12.5 + 1.25) x 2 %)
= 12.5% + 1.25 % + 0.275 %
= 14.025 %
2. Casual income by way of winnings from lotteries, crossword puzzles, card games, horse race and other races and other games of any sort or from gambling or betting of any form or nature whatsoever.
Tax shall be deducted at source only if winnings from lottery, cross word puzzles, card game or other games exceeds Rs. 5,000 and winnings from races exceed Rs. 2,500.
The rate of TDS shall be :
Income Tax 30%
+ Surcharge @ 10% of IT 3%
(30+10%) -------
33%
+ Education Cess @ 2% of
IT + Surcharge (33 x 2%) 0.66%
---------
Total TDS 33.66%
According to 115 BB, Gross winnings from casual incomes shall be chargeable tax @ 33.66% and not the net winnings. If the problem gives net winnings, the same shall be converted in to gross winnings using the following formula.
Net amount
Gross amount = -------------------
(100-33.66)
Surcharge ! 10% on Income tax is chargeable only if net income exceeds Rs. 10,00,000. Or else, the total TDS will be 30% + (2% of 30) = 30% + 0.6% = 30.6%
Then gross amount without surcharge
(net income = 10,00,000) is :
Net amount
Gross amount = --------------- x 100
(100 - 30.6)
3. INTEREST ON SECURITIES :
Interest on securities shall be taxable under the head income from other sources if securities are held as investments. It is taxable under the head "Income from business profession" if securities are held as stock in trade.
Interest on securities shall be chargeable to tax in the hands of such person happens to be the owner of the security at the time when interest becomes due.
Types of securities :
Types of securities
Government securities Non-Government securities
Tax free Govt. Less tax Govt. Tax free non-Govt. Less tax Non - Govt.
Securities Securities Securities Securities
(Exempt) (No grossing (Always to be grossed up
U/s 10 (15) up since it is since it is always net)
Always gross)
(If rate of interest (If interest in
is given no grossing up) Rupees is given,
always gross up)
1> Tax free Government securities : Interest on these securities is fully exempt from tax U/s 10 (15).
a) 12 year National Savings annuity certificate
b) National defence Gold bonds, 1980
c) Special bearer bonds, 1991
d) Treasury savings deposit certificates (10 years)
e) Post office cash certificates (5 years)
f) National plan certificates (10 years)
g) National plan savings certificates (12 years)
h) Post office national savings certificates (7 years / 12 years)
i) Post office savings bank account
j) Public account of post office savings accounts rules (interest upto Rs. 5,000)
k) Post office cumulative time deposit account
l) Fixed deposit
m) Special deposit scheme 1981
n) Interest on 7%. Capital investment bonds
o) Interest on Relief bonds & savings bond.
p) Notified NRI bonds.
2> Less Tax Govt. securities : Securities issued by state of Central Govt. No tax is deducted at source (TDS) on these securities and hence interest on these securities are not to be grossed up since interest received on these securities are always.
3> Tax free Non-Govt. securities : Securities issued by Non-Govt. organizations like local authority, company etc. it is called tax free securities since tax due on its interest is payable by the company.
Gross interest + Interest received by the assessee + Tax paid by the company on behalf of assessee.
4> Less tax Non-Govt. securities : Interest is paid on these securities after deducting tax at source.
Interest payable after TDS = Gross interest as a % of security invested - TDS
If rate of interest is given, then it is the gross amount and hence does not requires grossing up.
If net amount of interest received is given then it should be grossed up.
Rules of Grossing up or when to gross up.
1> If rate of interest is given, grossing up is done only for tax free Non-Govt. securities.
2> Interest on tax free Non-Govt. securities is always net interest and hence it is to be grossed up irrespective of whether interest rate or amount is given.
3> Interest on less tax non-Govt. securities is grossed up only when amount is given.
Formula for Grossing up :
a> Listed securities @ 10%
i> Without surcharge if net income = 10,00,000
Income tax @ 10%
+ Surcharge Nil
--------
10%
+ Education Cess @ 2% (10 x 2%) 0.2%
--------
Total 10.2%
Net amount Net amount
Therefore Gross amount = ------------------ x 100 = -------------------- x 100
(100-10.2) 89.8
ii> With surcharge if net income > 10,00,000
Income tax @ 10%
+ Surcharge @ 10% of income tax
(10 x 10%) 1%
---------
11%
+ Education cess @ 2% of
Income tax + Surcharge (11 x 2%) 0.22%
---------
Total 11.22%
Net amount Net amount
Therefore Gross amount = ------------------- x 100 = --------------- x 100
(100-11.22) 88.78
b> Unlisted securities @ 20%
i> Without surcharge if net income = 10,00,000
Income tax @ 20%
+ Surcharge NIL
--------
20%
+ Education Cess @ 2% (20 x 2%) 0.4%
--------
Total 20.4%
Net amount Net amount
Therefore Gross amount = --------------- x 100 = --------------- x 100
(100-20.4) 79.6
ii> With surcharge if net > 10,00,000
Income tax @ 20%
+ Surcharge ! 10% of Income tax
(20 x 10%) 2%
--------
22%
+ Education Cess @ 2% 0.44%
of income tax + Surcharge (22 x 2%) ----------
Total 22.44%
Net amount Net amount
Therefore Gross amount = ------------------ x 100 = ---------------- x 100
(100-22.44) 77.56
c> Casual Income @ 30%
i> Without surcharge if net income = 10,00,000
Income tax @ 30%
+ Surcharge NIL
--------
30%
+ Education cess @ 2% (30 x 2%) 0.6%
--------
Total 30.6%
Net amount Net amount
Therefore Gross amount = ----------------- x 100 ------------------ x 100
(100-30.6) 69.4
ii> With surcharge if net income > 10,00,000
Income tax @ 30%
+ Surcharge @ 10% of income tax
(30 x 10%) 3%
---------
33%
+ Education Cess @ 2% of income
tax + surcharge (33 x 2%) 0.66%
---------
Total 33.66%
Net amount Net amount
Therefore Gross amount = ------------------- x 100 = ---------------- x 100
(100-33.66) 66.34
DEDUCTIONS ALLOWED UNDER INCOME FROM OTHER SOURCES
a> Commission or remuneration for realizing dividend or interest on securities.
b> Sum credited by the employer to the employee's account as contribution made towards provident fund on or before the due date.
c> Interest on loan borrowed for the investment in securities / shares.
d> Repair / depreciation in the case of letting our of plant, machinery, furniture or building.
e> Standard deductions in case of family pension :
Rs. 15,000 or 33 1/3 % of such income whichever is less.
f> Any other expenditure to earn income.
DEDUCTIONS SPECIFICALLY NOT ALLOWED
a> Personal expenses are not deductible.
b> Interest payable outside India on which tax has not been deducted at source.
c> Expenditure in respect of winning from lottery.
d> Wealth tax.
Was this article useful?

Comments (1)

dhruti published on Jun 30, 2012, 06.09am IST

very good to nice

Reply

  • 0 VOTES

Post your Comment