Have you ever thought how people earning from rental businesses and digital platforms pay their taxes? Or are you finding it difficult to calculate your taxable income since you have income from other sources? If yes, then this post will help you to strategise our finances effectively.
Let’s delve and learn about other income sources and their impact on income taxes. But before we explore these income sources, let us know what income from other sources is.
What is Income from Other Sources?
Income from other sources are incomes that don’t fall under a particular income range, such as businesses, salary, and property. These earnings are taxed according to the Income Tax Act 1961. These incomes do not belong to a specific category but must be taxed. There are plenty of other income sources that you probably wouldn’t know about, but they do exist. Before learning about the inclusion of income from different sources, let’s learn about the five heads of income.
Five Heads of Income
There total five major heads of income:
1. Salary Income
Employees earn salary incomes Through monthly salaries, wages and incentives.
2. Business Income
This head of income includes earnings from any business like clothing, jewellery, tech companies, restaurants, etc. These incomes also include earnings earned by service providers like freelancers, Company secretaries, CA, etc.
3. House Property Income
These incomes include renting commercial or residential properties like clothing, jewellery stores, office spaces, rooms and flats.
4. Capital Gains
Incomes earned through stocks, property sales and investments fall under this category
5. Other Sources
These incomes include all earned from the sources not mentioned In the first four heads. These include lottery, gifts, interest, rental pensions and much more.
Inclusions in Income from Other Sources
Here are the different types of incomes that are included in Income from Other Sources:
1. Incomes from Dividend
Dividends are a portion of profits a company earns that is paid to its shareholders as profit. Dividend interest is one of the most common sources of income included in income from other sources. These incomes include dividends from mutual funds, foreign companies and Indian companies.
2. Miscellaneous Income
Income from insurance commissions or any unexpected income is taxed. Any income that is not regular falls under miscellaneous income.
The calculation of tax entirely depends on the income source. For example, tax for a winning amount will be 30%, but tax for a different source will be taxed differently. To make it easier, a tax calculator is one of the tools to make tax calculations simple.
3. Incomes from Interest
Incomes gained from any interests are counted under this category. This income includes interest on loans, fixed deposits, saving accounts, recurring deposits and other financial instruments.
4. Rental Income
Rental income is income gained by renting assets or properties. It includes renting out commercial properties, residential properties, machinery, instruments, vehicles, furniture, etc.
5. Lottery and Winning Amounts
Earnings from gambling, winning games, or lotteries, such as prize money and card games, fall under this category. These earnings are considered tax income.
6. Gifts
Gifts received without having to pay for them come under tax income. These include property shares, fixed deposits, etc.
7. Pensions
Pension income is one type of income that falls into this category. Pensions received by the family after a family member’s death are considered taxed income.
Deductions Allowed Under Income from Other
You can claim a deduction for some expenses if you earn an income tax under ‘income from other sources’. Income tax law in India provides you with this privilege under section 57 of the IT Act.
1. Tax on fixed deposit (FD)
TDS is deducted from the interest earned on deposits and can be claimed if the amount is below 40000/-. These taxes can be deducted from financial institutions.
2. Provident fund
PF is an amount deducted from the employee every month and transferred to the employee’s PF account. These incomes earned from provident funds are not taxed.
3. Interest
Interest is one of the income sources from other sources. Still, interest from a specific field can be deducted, such as on borrowed capital and investment loans.
4. Maintenance
Property or machinery maintenance can be deducted if it generates rent. By claiming this, you can reduce your tax amounts. Any income earned from depreciation and repair qualifies for a tax deduction.
5. Family pension
Family pensions are considered income from other sources, but a certain amount can be deducted to lower the tax charges. Under the Income Tax Act, only 33.33% or 15000 ₹ of the pension received can be deducted.
6. Non-capital expenses
Insurance companies can claim deductions for non-capital expenses such as depreciation on machinery, furniture, and property.
Conclusion
In this era of constant development in technology, industries and finance sectors, people are constantly evolving, and with so many changes going on, the need to understand tax inclusions and deductions on income from other sources has become crucial. With the correct information, taxpayers will be able to know about their rights to claim tax deductions and exemptions on incomes. Understanding other forms of income and their tax deductions can make a huge difference in your financial planning, so if you are struggling to maximise your exemptions! Come and dive in to explore all incomes and strategize your finances effectively.
