INCOME FROM OTHER SOURCES

STUDY NOTES

Capter 5 Income from other sources

Securities

Securities exempted from tax Exempt U/s 10(15)

Tax-free securities

Less tax securities

Government

Commercial

Listed in stock exchange

Unlisted in stock exchange

Government

Commercial

Listed in stock exchange Securities exempted from tax 10 (15)

Unlisted in stock exchange

Tax due on the shares is fully exempted from tax. As such the interest received by the assessee will not be included in the total income. The government issues these securities.Page 263 Tax-free Securities This securities are issued by the government in the case of tax free Govt securities and companies in the case of tax free commercial securities. Gross Interest will be included in the total income. a) Tax free Government Securities Gross Interest = Face value X Rate / 100 b) Tax free Commercial Securities Note:- Interest received by the assessee is net Interest, so the same is to be converted into Gross Interest Net Interest = Face value X Rate / 100 Net Interest to Gross Interest Case 1: - If the securities are listed or Not listed in a stock exchange Gross Interest = Net Interest X 100 / 90

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SUBRAMANAIM.C HOD COMMERCE DEPARTMENT

INCOME FROM OTHER SOURCES Less Tax securities

STUDY NOTES

These securities can also be issued both by the Govt and commercial authorities. There can be two types of problems. 1. When rate of interest is given (both for Govt and commercial Securities) Gross Interest = Face value of security X Rate / 100 1. When interest amt received is given (both for Govt & commercial) Interest received is Net Interest and the same is to be converted into Gross Interest. Gross Interest = Net Interest X 100 / 90 Note: - If the nature of security is not mentioned in the problem then the general assumption is that the security is of Less-tax unlisted Note: - If the interest received amt is Rs 2500 or less than Rs 2500 then interest received is equal to Gross interest. More than 2500 Rs, interest received is Net Interest, so it is to be grossed up Deduction u/s 57 i. Collection charges actual amt spend allowed. ii. Interest on loan taken to purchase the securities. iii. Any expenditure, which is incurred on assessee to earn such income. Note: - Commission paid to purchase or to sell the securities will not be allowed as deduction. Important points 1. Dividend on shares: a. Dividend from Domestic Company Exempt b. Dividend from units of UTI - Exempt a. Dividend from Non-Domestic Company or cooperative Society Taxable 1. Interest on bank deposit a. Up to Rs 5,000 b. More than Rs. 5,000 -

Taxable as it is More than 5000 & given net then, Gross = Int X 100/90 taxable as it is

3. Cooperative Interest and Dividend

4. Interest on company Deposits or Firms deposit a) Interest on company deposits or firm deposit: a. Up to Rs 5,000 Taxable as it is b. More than Rs. 5,000 More than 5000 & given net then, Gross = Int X 100/90 5. Lottery a) If the price amt is given - fully taxable b) If Net amt is given Gross amt = Net amt X 100 / 70 6. Horse race Income Fully taxable 7. Casual Income SUBRAMANAIM.C Fully taxable

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HOD COMMERCE DEPARTMENT

INCOME FROM OTHER SOURCES

STUDY NOTES

8. Royalty, Directors fee, Articles & Income, Exam Remuneration Taxable = Received Income Expenses 9. Family Pension Taxable = Received amt 1/3 }W. E.Less Or Rs 15000

10. Income from sub tenant Net Income taxable 11. Income from machinery, plant and furniture on hire: Taxable = Rent recurred Expenses and depreciation 12. Agriculture Income outside India - taxable 13. Income from Non-Agricultural Taxable land in India . 14. Salary of M.P or MLA Taxable Taxable

15. Income from undisclosed sources (unexplained money)

17. Income of minor: a. Income of minor shall be included in the income of his parents whose income is higher. b. Exemption of Rs 1500 is available for every minor. c. If minor earns income from self-efforts then such income will not be added to the income of his parents.

Computation of income from Interest on securities under the income from other sources for the A.Y. 2006-2007 Particulars Amount Interest on tax free Govt securities Interest on tax free commercial securities listed Interest on tax free commercial securities Unlisted Interest on Less tax Govt securities Interest on Less tax Commercial securities Listed Interest on Less tax Commercial securities Unlisted Gross income from Interest on securities Less: - Deduction under section. 57 Collection Charges ** Interest paid on loan taken to purchase the securities ** Income from Interest on securities *** *** *** *** *** *** ***

** ***

Exempted Income

Taxable

To be Grossed Up

Not to be Grossed Up

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SUBRAMANAIM.C HOD COMMERCE DEPARTMENT

INCOME FROM OTHER SOURCES

STUDY NOTES

Question 2 Which of the deductions are not allowable under the head Income from other sources? (6 Marks) (Nov.97) Answer The following are not allowable while computing the income under the head other sources: (i) any personal expenses of the assessee, (ii) any interest chargeable to tax under the Act which is payable outside India on which tax has not been paid or deduct ed at source. (iii) Any amount taxable in India as salary if paid or payable outside India and tax has not been paid thereon or deducted at source. (iv) Any sum paid on account of wealth tax (section 40(a)(iia)). (v) The provision relating to disallowance of payments to relatives and associate concerns, payment exceeding Rs.20,000 made otherwise than by account payee crossed cheques or drafts covered by section 40A(3). (vi) Where the assessee is a foreign company and the provisions of section 44 D are a pplicable for business they shall apply in the same manner, for computing income under the head other sources. (vii) In the case of an assessee having income chargeable under the head Income from other sources no deduction in respect of any expenditure or allowance in connection with such income shall be allowed in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. Question 3 When would the dividend income be taxed in the hands of a shareholder? (6 Marks) (Nov.2002) Answer The provisions relating to the year of taxability of dividend are contained in section 8 of the Income -tax Act, 1961. (a) Any dividend declared by a company or distributed or paid by it within the meaning of section 2(22) of the Act shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be. (b) Any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it. Students may note that any dividend which is liable for dividend distribution t ax covered by section 115-O (being a dividend declared by a domestic company) is exempt under section 10(34) and hence would not be chargeable to tax.

Question 4 Deductions allowable u/s 57 of the Income Tax Act, 1961, in respect of Income from other s ources. Answer (i) In the case of dividends (other than those which are covered by section 115 -O) or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for realizing dividend or interest is deductible. (a) (b) repairs (including current repairs) insurance (6 Marks) (May 2003)

(ii) If the income is from letting of plant, machinery or furniture, the following shall be deducted :

(d) depreciation

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SUBRAMANAIM.C HOD COMMERCE DEPARTMENT

INCOME FROM OTHER SOURCES

STUDY NOTES

(iii) In respect of family pension, a sum equal to 33 1/3% of the pension or 15,000, whichever is less, shall be allowed as deduction. (iv) Any other expenditure, not being a capital expenditure, incurred wholly, necessarily and exclusively in earning the income is deductible.

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SUBRAMANAIM.C HOD COMMERCE DEPARTMENT