Income From Other Sources - Calculate Income Tax, Deductions & Exemptions

The Income Tax Act broadly classifies income under these heads: salary, house property, business or profession, and capital gains. However, certain types of income do not fit into these categories. Such income is taxed under the head ‘Income from Other Sources’ as per Section 56 of the Act. 

This is a residuary category that includes earnings like interest on savings, fixed and recurring deposits, lottery winnings, gifts, and certain types of rental income. Casual income like lottery, income from horse race winnings, etc are taxed at 30%. Other income like bank interest are taxed under the respective slab rates. 

What is Income From Other Sources?

Income that is taxable under the head of income from other sources can include the following income:

• Bank interest
• Interest on securities that are not taxable under the head, Profits and Gains from business and profession
• Family pension
• Lottery winnings , crossword puzzles, card games, races including horse races, and gambling of any form
• Dividends
• Any sum an employer receives from his employees towards contribution in EPF, Superannuation fund or ELSI, which is not taxable under the head, Profit and gains from business and profession, and not deposited in the relevant fund.
• Plant and machinery owned by the taxpayer is let out for rental purposes, if it does not fall under the head of income from business and profession.
• Rental income from the composite unit of plant, machinery and furniture with the building that is not separable and is not taxable under the head, Profits and Gains from business and profession.
• Amount received under the Keyman insurance policy (including bonuses) which is not taxable under the head, Profits and Gains from business and profession.
• Interest received on compensation or enhanced compensation.
• Any compensation received by the person due to the termination of employment.

Savings Bank Account – Interest Income

• Interest that gets accumulated in your savings bank account must be declared in your tax return under income from other sources. 
• Note that the bank does not deduct TDS from bank interest. 

Deduction on Interest Income Under Section 80TTA

• For a residential individual (age of 60 years or less) or HUF, interest earned up to Rs.10,000 in a financial year is exempt from tax. 
• The deduction is allowed on interest income earned from savings account with a bank, co-operative banking society or post office.
• Senior citizens are not entitled to benefits under section 80TTA.

Tax On Fixed Deposits Interest

• Interest earned from fixed deposits is taxable at applicable slab rates.
• Senior citizens can claim up to Rs.50,000 tax deduction on the interest earned from savings bank accounts, fixed deposits, recurring deposits with banks, post offices, etc., under Section 80TTB.
• TDS is deducted on fixed deposits when the interest crosses the applicable threshold limit. 

Family Pension

• If you are collecting a pension on behalf of someone who is deceased, then you must show this income under income from other sources. 
• This will be added to the taxpayer’s income and tax must be paid at the tax rate that is applicable. 
• There is a deduction of Rs.15000 ( Rs. 25000 under new tax regime)  or one-third of the family pension received, whichever is lower. 

Taxation Of Winnings From Lottery, Game Shows, Puzzles - Casual Income

• If you receive money from winning the lottery, Online/TV game shows, races including horse races, card games and other games, gambling betting, etc., it will be taxable under the head Income from other Sources. 
• The income will be taxable at flat rate of 30%, which after adding cess, will amount to 31.2%.

 Dividend Income

• Dividends received from investments, such as stocks, are taxed under “income from other sources”. 
• Taxpayers can claim interest expense up to 20% of the dividend income. 
• Also, if the total dividend amount exceeds Rs.5,000 (Rs. 10,000 for FY 2025-26), the company deducts TDS at 10% while paying the dividend.

Income From Gifts

• Taxation on gifts is covered by section 56 (2)(vi) of the Income Tax Act.
• Any gifts received in cash exceeding Rs.50,000 shall be chargeable to tax.
• Any gifts received in kind (without any consideration) and the fair market value of such gift is more than Rs.50,000 then the aggregate value will be taxable in the hands of such individual.

Interest On Income Tax Refund

• The assessee is entitled to a refund of the excess tax paid when they have paid more than they are required to. 
• Advance Tax (AT), Tax Deducted at Source (TDS), or Self-Assessment Tax (SAT) are three possible ways to pay excess taxes.
• To get an income tax refund, the individual must wait a few days after filing their income tax return. 
• Interest on the refund for this time period will be paid to the taxpayer.

Expenses Allowed To Be Deducted From Certain Income Sources

Similar to freelancers and businesses who can deduct certain expenses from their income, a taxpayer earning income from other sources can claim deductions for expenses as given below:

• Expenses (not capital expenses) such as repairs, insurance premium, and depreciation in respect of plant, machinery, furniture and buildings are deductible from rental income earned by letting out of plant, machinery, furniture and building.
• A standard deduction is allowed on family pension income. The deduction is the lower of:
  • ₹15,000 (or ₹25,000 under the new tax regime), and
  • One-third of the actual family pension received.
• This applies to monthly pensions received by family members of a deceased employee.
• In case, interest on compensation or enhanced compensation is received, 50% of the interest is allowed to be deducted (applicable starting from the assessment year 2010-11).
• As per Section 57(iii), a deduction is allowed for any other expense (which is not a capital expense) which has been spent wholly and exclusively for making or earning such income.

Expenses not Deductible from Other Sources Income

The following expenses cannot be claimed as a deduction against income from other sources:

• Expenses incurred for earning casual income like lottery, horse races, and online gaming.
• Interest expense on dividend income can be claimed only up to 20% of the dividend received; any excess is not allowed.
• Personal expenses of the taxpayer.
• Interest paid outside India, wherein TDS not deducted on such payment.
• Expenses payable within India, on which TDS is not deducted (30% is disallowed)

Final Word

Income frome other sources, though residuary head, covers various kinds of income that do not fit into other heads. Proper consideration of all the taxable income is crucial for accurate computation of taxes, compliance and prudent tax planning.