Income from other sources is a residual category that includes any income not covered under other heads. Key types of income covered are dividends, interest, lottery winnings, and cash gifts over Rs. 50,000 (except from relatives). Deductions for expenses incurred to earn such income are allowed under section 57, while section 58 disallows some expenses. Certain income chargeable under this head may instead be charged under business income depending on circumstances. The tax treatment of different types of other income like dividends and lottery winnings is also specified.

1. Pakistan Air Force – Karachi Institute Of Economics and Technology
Taxation Assignment
Topic: Note on income from Sources
Maria. Abdul. Rehman Pirwani (5183)
Course Instructor: Mr. Husain Lakhani
Dated: 8th April 2013

2. “Income from Other Sources”
Note
Introduction:
Income from other sources is the fifth and last head of income under which the total income is
computed and assessed. As the very name suggests. “Income from Other Sources” is a
residuary head of income. Any item of income chargeable to tax but does not fall within the
domain of the other four specific heads of income shall be included under this head of income.
Section 56 lays down what incomes are taxable under this head.
Section 57 and 58 lays down the deductions which are allowable and not allowable
respectively, while computing income under this head.
Section 59 deals with income chargeable to tax, corresponding to section 41, which falls under
the head of “Profit and Gains of The Business”.
Chargeability – Section 56
Income Chargeable only under this head:
The following income shall be charged to tax only under the head “Income from Other
sources”:
Income by way of winnings from lotteries, cross word puzzles, races including
Horse race, card games and other games of any sort, gambling, betting, etc. It requires mention
here that such winnings are chargeable to tax at a flat rate of 30%.
Any sum of money, the aggregate value of which exceeds Rs.50, 000 receivedfrom any
person without consideration by an individual or Hindu UndividedFamily on or after
01.04.2006.
Exemption is granted in respect of any sum of money received –
(a) From any relative; or
(b) On the occasion of marriage of individual; or
(c) Under a Will or by way of inheritance; or
(d) In contemplation of death of the payer or
(e) From a local authority; or

3. (f) From any fund, foundation, university, other educational institution, hospital, medical
institution, any trust or institution.
In respect of above gifts, there is no ceiling limit and therefore, entire amount isexempt from
chargeability.
The definition of the term ‘relative’ for this purpose is as under:
(a) Husband or wife of individual;
(b) Brother or sister of the individual;
(c) Brother of husband of the individual;
(d) Brother of wife of the individual;
(e) Sister of husband of the individual;
(f) Sister of wife of the individual;
(g) Brother of father of the individual;
(h) Brother of mother of the individual;
(i) Sister of father of the individual;
(j) Sister of mother of the individual;
(k) Lineal ascendant of the individual (say,
grandfather)
(l) Lineal descendant of the individual (say,
son, grandson, daughter)
(m) Lineal dominant of the husband of the
individual
(n) Linealinheritor of the husband of the
individual
(o) Lineal ascendant of the wife of the
individual (say, wife’s father)
(p) Lineal descendant of the wife of the
individual;
(q) Wife or husband of the relatives listed at
serial numbers (b) to (p)
Taxability of any sum received:
The objective of taxation of any sum received by an individual or HUF, without any consideration is
basically to bring into tax net the fake transactions in the name of gifts from unknown persons.
Keeping this in mind, any gift received from non-relatives, subject to exemptions listed above, has
been subjected to tax. Accordingly, any sum of money received by an individual or HUF duringthe
year, the aggregate of which is exceeding Rs.50,000, shall be subject to tax in the hands of such
individual or HUF. It needs mention that the aggregate limit of Rs.50, 000 as provided in the
Section is not in the nature of basic exemption or anedge limit. Accordingly, in case an individual
or HUF receives any sum of money exceeding Rs.50, 000, which are not covered by exemptions,
the whole of such sum shall be subject to tax under the head “Income from Other Sources”.
It is to be understood that gifts-in-kind, movable and immovable, are not liable to tax. They shall
continue to be regarded as capital receipts not having the character of income.
Though the law provides for chargeability of any gifts received by individual or HUF, all the above
clauses of the definition of the term ‘relative’ is confined only with reference to individuals.
Therefore, an assessed, being a HUF, is not eligible to claim exemption provided by clauses dealing
with ‘gifts received from relatives’ and ‘gifts received on the occasion of marriage’ as mentioned
above.

4. Income chargeable under this head, only if not chargeable under the
head “Profits And Gains of Business or Profession:
The following income shall be chargeable to tax under this head of income onlyif it is not taxable
under the head “Profits and Gains of Business or Profession”:
(a) Interest on securities (State and Central Government securities and debentures)
(b) Any sum collected from employees towards their share of contribution to any Welfare Fund
Account.
(c) Income from letting of machinery, plant and furniture; and
(d) Income from letting of machinery, plant and Furniture together with building, if the letting of
the building is inseparable to the letting of other assets.
Income chargeable under this head only if not chargeable Under the
head “profits and gains of business or profession” or Under the head
“salaries”:
Any sum received under an insurance policy including bonus is chargeable under this head when it
is received by any person other than the employer who took the policy and the employee in
whose name the policy was taken.
Income not chargeable under other heads of income:
All other income chargeable under Income Tax, Act, but not falling under anyother specific heads
of income shall be chargeable to tax under the head “Income from Other Sources”.
Dividends:
Dividends include:
(a) Any distribution by a company to its shareholders to the extent of accumulatedprofits whether
capitalized or not resulting in the release of all or any part ofthe assets of the company,
(b) Any distribution to its shareholders by a company –
Of debentures, debenture-stock or deposit-certificates with or withoutinterest;
Distribution of bonus shares to the preference shareholders by thecompany, to the extent
of accumulated profits, whether capitalized or not,
(c) Any distribution made to the shareholders by a company on its liquidation to the extent to
which the distribution is attributable to the accumulated profits of the company, whether
capitalized or not
(d) Any distribution by a company to its shareholders on account of reduction ofshare capital to
the extent of which the company possesses accumulated profits, whether capitalized or not.
(e) Any payment to the extent of accumulated profits by a company, not being a company in
which public are substantially interested, of any sum by way of :

5. Loan or advance to a shareholder who holds the beneficial ownership ofequity shares
carrying not less than 10% voting power,
loan or advance to any concern (HUF, firm, AOP, Body of Individuals or acompany) in which
such shareholder is a member or partner holdingsubstantial interest (20% or more
beneficial interest at any time duringthe previous year),
Any payment on behalf of or for the individual benefit of any suchshareholder made to any
person
Exceptions:
1) Any advance or loan to a shareholder or the concern in which the shareholderhas
substantial interest by a company will not be deemed as dividend, if the loan or advance is
given during the normal course of its business provided the lending of money is a
substantial part of the business of the company.
2) Any payment made by a company on purchase of its own shares from a shareholder in
accordance with the provisions of Section 77A of the Companies Act, 1956, shall not be
regarded as dividend. Such buyback of shares attracts capital gains tax liability in the hands
of the shareholder u/s 46A.
3) Any distribution of shares pursuant to a demerger by the resulting company to the
shareholders of the demerged company (whether or not there is a reduction of capital in
the demerged company) shall not be treated as dividend.
Winnings from lottery, etc:
Where the total income of an assessed includes any income by way of winningsfrom any lottery or
crossword puzzle or race including horse race or card game and other game of any sort or from
gabling or betting of any form, tax shall be calculated at the rate of 30% of such income plus
surcharge. The taxability of income in the nature of winnings from any lotteries, crossword
puzzles, race, etc. is subject to the following:
a) No expenditure or allowance can be allowed against such income.
b) No deduction under Chapter VI-A can be allowed;
c) No benefit of carry forward and set off of loss/unabsorbed depreciationallowance is
available against such income; and
d) No basic exemption limit is available.
This provision does not apply to income derived from owning and maintaining race horses in
respect of which normal rates of tax shall apply. Loss derived from this source shall be governed
by the provisions of Section 74A.

6. ‘Lottery’ includes winnings from prizes awarded to any person by draw of lotsor by chance or in
any other manner whatsoever, under any scheme or arrangement by whatever name called.
‘Card game and other game of any sort’ includes any game show, an entertainment program on
television or electronic mode; in which people compete to win prizes or any other similar game.
Deductions Admissible In Computing Income From Other Sources
[Sec. 57];
General deduction [section 57: Any other expenditure (not being capitalexpenditure), which is
laid out or expanded wholly and exclusively for the purpose of making or earning such income is
deductible.
Expenditure deductible even if income not actually earned: the expenditure satisfying the
conditions under section 57(iii) is allowed as a deduction even if the income for which it is incurred
is not actually earned. Thus interest on loan borrowed to purchase investments, is deductible even
if there is no income derived from the investments in a particular year.
Deductions admissible in computing income from other sources:
section 57
Income included and the section 56
1) Dividends, other than exempt dividends, or interest on securities.
Sum received by employer from employees as contribution to certain funds.
2) Letting on hire of machinery, plants,furniture or buildings as given under section 56(2) (ii)/
(iii).
Family pension i.e. regular monthlyamount payable by employer to a familymember of an
employee on his death.
Inadmissible Expenses – Section 58
1) Personal expenses
2) Interest and salary payable outside India, if tax has not been paid or deductedat source
3) Wealth-tax
4) Expenses of the nature described in Section 10A
5) No deduction shall be allowed in respect of winnings from lotteries, cross wordpuzzles,
card games, races including horse race, gambling, betting, etc.

7. However, in respect of the activity of owning and maintaining racehorses, expenses incurred shall
be allowed even in the absence of any stake money earned. Such loss shall be allowed to be
carried forward in accordance with the provisions of Section 74A.
Deemed Income – Section 59:
Any amount received or benefit derived in respect of expenditure incurred orloss or trading
liability allowed as deduction shall be deemed as income in the year in which the amount is
received or the benefit is accrued. This provision is similar to that of Section 41(1) under the head
“Profits and Gains of Business or Profession”.
Method of Accounting – Section 145:
Income chargeable under the head “Income from Other Sources” shall becomputed in accordance
with cash system of accounting or mercantile system of accounting regularly employed by the
assesse.
Computation Sequence To Be Remembered:
1) Identify income chargeable under this head of income and include them. Inrespect of
dividend income, year of chargeability should be decided by applyingSection 8.
2) If net amount after tax deducted at source is given, include the gross amount.
3) If the income so identified is eligible for exemption u/s 10, avail the exemptionand include
only the balance amount. E.g. in respect of interest on certainnotified securities, deposits
and bonds qualify for exemption u/s 10(15).
4) If income is clubbed from minor children, claim exemption u/s 10(32) inrespect of such
income up to a maximum of Rs.1, 500 per child.
5) Expenses and deductions qualifying u/s 57 should be claimed.
6) Claim deductions, if any, available under Chapter VI-A to the extent applicableafter arriving
at the gross total income and not under this head of income.Deductions cannot exceed the
amount of such income included in the grosstotal income.
7) If the total income includes winnings from lotteries, crossword puzzles,gambling, betting,
etc., apply flat rate of 30% for calculating the income taxpayable on such income u/s
115BB.
Conclusion:
Above mention sections give you the brief explanation of income which comes in the last of
head of incomes.