Income From Other Sources: Income from Other sources like the interest of Fixed Deposit, Saving Bank Account, Senior Citizen Saving Scheme(SCSS), and Recurring Deposit needs to be shown in the Income Tax return. This article describes Income from Other sources, about what kind of income comes under this head. It discusses Income Tax Return with specific cases of ordinary income such as Saving Bank Account, Fixed Deposit, RD, etc.
Overview of ITR’s Charged on Other Income Sources
ITR-1 used to ask only for the total amount of ‘Income from other sources for the FY 2017-18 or AY 2018-19, but from FY 2018-19 or AY 2019-20 years, all individuals will be required to give a detailed break-up.
Not all income falls under Salary’s heads; House Property, Capital Gain and Business & Profession will be conducted under the head Income from Other Source.
In ITR1 for Financial Year 2018–19 or Annual Year 2019–20, the Income from other sources consists of Interest from Deposit (Fixed/Post office/Cooperative Society//Recurring of Bank), also interest from Saving Bank account, Interest from Income Tax Refund and Any other.
Interest from Other Sources of Saving Account in ITR
Interest that gets gathered in an individual’s savings bank account must be submitted in their tax return under income from other sources. Note that the bank on savings bank interest does not deduct TDS. Interest from both recurring deposits and fixed deposit is taxable, while interest from the account of savings bank and post office deposits to a certain extent are tax-deductible. But all of them are displayed under income from other sources. All are shown under this head for Interest income from savings fixed deposits, bank accounts, or post office savings accounts.
Claim 80TTA Deduction for Interest on Saving Account
Interest on account of savings bank earned up to ₹10,000 per year is allowed as a deduction of the Income Tax Act under Section 80TTA. This limit of ₹10,000 covers interest from all savings accounts with banks, post offices and co-operative banks. If the interest earned from these mention sources exceeds ₹10,000, the additional amount will be taxable under the head of ‘Income from other sources.’
A crucial point to note here is that the deduction under Section 80TTA available is not made as per bank account but on the total interest earned on all the individual’s bank accounts.
Interest earned on time deposits such as fixed deposits, recurring deposits or any other time deposits is not allowed Deduction under Section 80TTA. Also, on bank savings accounts, no tax is deducted at the source of interest income.
Section 80TTA does not apply to senior citizens. The senior citizens under a different section enjoy a higher tax benefit. Interest gained on saving deposits and fixed deposit with the post office or co-operative banks or banks for a max amount of ₹50,000 earned is eligible for deduction under Section 80TTB only by the senior citizen.
Also, there shall be no deduction of tax at the source up to ₹50,000. For every bank individually, this limit of ₹50,000 has to be computed.
Interest on Fixed Deposit and ITR and Income from Other Sources
Fixed deposit interest that a person receives is added along with other income that one has, such as salary or professional income, and the individual at a tax rate that applies to that individual will have to pay tax on that income. TDS is deducted when earned on interest income, even if the individual has not paid it.
Example: The bank will deduct TDS charged on interest accumulated each year on an FD for five years. Therefore, only when the FD matures is that every individual pays the taxes on an annual basis instead of doing it. From 1 April 2018, senior citizens up to Rs 50,000 on the interest income they receive from fixed deposits with post offices, banks, or co-operatives will enjoy an income tax exemption under Section 80TTB.
What is it about Income from Other Sources?
Income earned can be classified into categories during the particular year like :
- Income from Capital Gain
- Income from Salary
- Income from House Property
- Income from Business & Profession
- Income from Other Sources: Income that does not fall under the heads of Salary, Capital Gain, House Property, and Business & Profession will come under the category of Income from Other Source. Hence, this is considered as the residuary head of income.
This income is NOT made a fee, i.e. under the Income Tax Act 1961, it is taxable. Section 56 deals cover all such taxable income and with this residuary head of income. Every person is required to enter data of all income earned by you during the year.
Recurring Deposits, Term Deposits and Post office Monthly Income Scheme
Reporting Fixed Deposits
If one has three FDs open, then sum up all the interest income and enter it under the ‘Other interest income’ option.
- Reporting Recurring Deposits: In the case of Recurring Deposits, Post office term deposits interest earned is taxed as Income from Other Sources. A 10% tax will be deducted on interest earned. The interest earned should be manifested in ‘income from other sources.
- Exempt Income: The EPF and PPF amount one withdraw after maturity is exempt from tax and must be declared as excluded income from other sources. Note that: After five years of continuous service, the EPF is only tax-exempt.
- Senior Citizen Scheme: If the interest total income is more than Rs 10,000 in a year, then the TDS or tax deducted at the source is cut. So this amount is treated in the same way as Fixed Deposit.
- Family Pension: If one is collecting a pension on behalf of someone who is deceased, then one must show this income under income from other sources. There is a deduction of one-third of the family pension or Rs 15,000 received, whichever is lower than the Income through Family Pension. This will be added to the taxpayer’s income, and tax must be paid at the applicable tax rate.
Steps To Find The Deduction Amount From Pension
Mentioned here are few steps to find the Deduction amount from Pension:
Find 1/3 of the amount of the pension.
Check whether the pension is less than 15,000. If yes, then calculate the deduction amount, which is 1/3 of the pension amount; else, it is 15,000
Deduct the pension amount from the pension.
Show the final amount in the previous Step as Income from Other Sources.
Examples of Income from Other Sources
Some examples of Income from Other Sources
Various types of income under Sub-section 2 to section 56 count to be chargeable to tax under the Income from Other Sources head. Few examples of certain incomes normally taxed under or fall under the category of income from other sources are given below:
Dividends: Dividends depending on the residential status of the company are taxable as income from other sources, which are required to pay them out as ordered.
- Dividend from an India-based company: If the individual company on this receipt has paid Dividend Distribution Tax, the dividend is exempted from chargeable tax. However, the income tax act under section 115BBDA, if a resident firm/individual/HUF received dividends in surplus of ₹ 10 lakhs from Indian companies, then the total amount exceeding the ₹ 10 lakhs mark is taxable at 10% of the total amount.
- Dividend from a foreign company: Dividend gained from foreign companies as income from other sources is subjected to tax.
One-time income: One-time incomes, which involve winnings from lotteries, card games, crossword puzzles, horse races, and other games of any sort, similar to gambling or betting of any form or nature, are all covered under-compensation.
Compensation ON Interest: Interest received by a resident or taxpayer on the amount of reimbursement or compensation given in situations like compulsory acquisition is taxable under the head of income from other sources.
Interest on securities if the income comes under “Profits and Gains of Business or Profession”, then it is not taxable.
Gifts: Gifts such as any amount of money and immovable or movable property that’s acquired without consideration are also taxable.
Any sum of money received in the course of negotiations as an advance or otherwise for the transfer of a capital asset or wealth shall be charged to tax under this head, if:
- Such sum is relinquished; and
- The negotiations do not succeed in the transfer of such capital assets.
The following receipts are categorised as income from other sources only if they’re not liable as “profits and gains of business or profession.”
- Employees’ contribution to welfare schemes.
- Interest in securities like government debentures or bonds.
- Rental income from letting out machinery, furniture or plant owned by the assessee.
- Rental income from letting out machinery, plant, or furniture, along with a building, where these two cases of letting out are inseparable
- Receipts under Policy of Keyman Insurance.
Examples of Other Receipts Chargeable As Income From Other Sources
Here are few examples of other receipts that automatically happen under this category.
- Income made from subletting of house property by a resident
- Casual income
- Insurance commissions earned by the assessee
- Family pension payments collected by the legal heirs of dead employees
- Interest on deposits with companies and bank deposits
- Interest on given loans
- Remuneration accepted by Members of Parliament
- Rent collected from land or vacant plot.
- Agricultural income collected from agrarian land situated outside India
- Interest paid on excess payment of advance tax by the Government.
Income from Other Sources in ITR2
In ITR2, an individual has to fill Schedule-OS for Income from other sources:
- Against item UNDER 1a and 1b, enter the necessary details of aggregate income through interest and dividend, which is not exempt.
- Against item 1c, indicate the total income from plant or furniture or machinery let on hire and also such income from the building where its letting is integrated from the letting of the said plant or furniture or machinery under the head Profits and gains of business or professionif it is not chargeable to income-tax.
- Income from maintaining and owning racehorses is to be calculated separately as loss from maintaining and owning racehorses cannot be adjusted against income from any other form of sources and can only be brought forward for set-off against comparable income in subsequent years.
- Winnings from lotteries, races, games, gambling, betting, crossword puzzles, etc., as per section 115BB of the income tax, are to be subject to special rates of taxation and entered on a gross basis; hence a separate article is provided, and the income from such sources cannot be adjusted against the arising losses under the Income from other sources HEAD.
- The total income chargeable and computes the Item 5 of this Schedule adds under the head “Income from other sources” and the item 3 + item 4c. If the balance in item 4c, which shows income from maintaining and owning racehorses, is a loss, enter the total of item 3, and please enter 0.
Most of us would have interest in fixed deposits, recurring deposits, savings bank accounts, and company deposits that everyone needs to add together and fill in Interest Gross 1(b).
Irrespective of whether income is exempt from tax or taxable, one should publish it in their return. This article was all about Income from Other sources, what it is, how, how to show it Income Tax Return. In the case of aggregate deposit scheme, which traverses multiple financial years, Recurring Deposits, Fixed Deposits, etc. is recommended that one should show the income earned interest in every financial year. One-time incomes, which involve winnings from lotteries, card games, crossword puzzles, horse races, and other games of any sort, similar to gambling or betting of any form or nature, are all covered under-compensation.
All such conditions mentioned interest income is taxable under “Other sources”. One will be liable to tax based on their income slab. Further, an individual can enjoy a deduction of up to Rs 10,000 on interest received from the recurring deposits and savings account. At the same time, senior citizens from their fixed deposits get a deduction of up to Rs 50,000 on their interest income.