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Want to Achieve any of the below Goals upto 80% faster?
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1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Income From Other Sources - Income Tax, Deductions, and Exemptions
Income From Other Sources - Income Tax, Deductions, and Exemptions
Overview of Heads of Income
In India, the Income Tax Department categorizes income into five distinct heads for reporting and tax purposes. Each head of income is subject to different rules and regulations concerning taxation. The five primary heads are:
Income from Salary: This includes all income earned through employment, encompassing wages, salaries, bonuses, and other compensations.
Income from House Property: This category involves income derived from owning property, such as rent received from tenants.
Income from Capital Gains/Loss: This head covers profits or losses arising from the sale of capital assets like property or investments.
Profits and Gains from Business and Profession: This includes income generated from running a business or professional practice.
Income from Other Sources: This head encompasses all other forms of income that do not fit into the aforementioned categories.
Income from Other Sources captures various types of income that are not classified under the other four heads. This category includes a wide range of income types, each with its own set of tax implications, deductions, and exemptions.
Interest Income from Savings Bank Accounts
Interest accumulated in your savings bank account must be reported under the "Income from Other Sources" head in your tax return. It's important to note that banks do not deduct Tax Deducted at Source (TDS) from savings bank interest. However, interest income from fixed deposits and recurring deposits is taxable. Conversely, interest income from savings bank accounts and post office deposits is eligible for certain deductions.
Deduction on Interest Income Under Section 80TTA
For individuals below the age of 60 years and Hindu Undivided Families (HUFs), interest income up to Rs. 10,000 per financial year is exempt from tax under Section 80TTA. This deduction applies to interest earned from:
Savings accounts with banks
Savings accounts with cooperative societies engaged in banking
Savings accounts with post offices
Senior citizens, however, do not benefit from Section 80TTA's deductions.
Taxation of Fixed Deposits
Interest income from fixed deposits (FDs) is considered part of your total income and is taxable according to your applicable tax slab. Banks are responsible for deducting TDS on FD interest when it is earned, not when it is paid.
Example: If you hold an FD with a 5-year maturity period, TDS will be deducted annually on the accrued interest. To manage your tax liabilities effectively, it's advisable to pay taxes on a yearly basis rather than waiting for the FD to mature. Since April 1, 2018, senior citizens have been granted a tax exemption up to Rs. 50,000 on interest income from savings bank accounts, fixed deposits, recurring deposits with banks and post offices under Section 80TTB.
Avoiding TDS on Fixed Deposits
Banks must deduct TDS if the total interest income from all branches exceeds Rs. 40,000 in a financial year (previously Rs. 10,000 before FY 2019-20). The TDS rate is 10% if your PAN details are provided and 20% if PAN details are absent. Details of TDS deductions on FD interest can be found in Form 26AS. To avoid TDS on fixed deposits, submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank, requesting no TDS deduction. These forms are only valid for one financial year and must be submitted annually. If you miss this step, you can claim a refund by filing your income tax return.
Reporting Fixed Deposits and Recurring Deposits
Reporting Fixed Deposits
If you have multiple fixed deposits, sum up the total interest earned from all FDs and report it under ‘Other interest income’ in your tax return.
Reporting Recurring Deposits
When the total interest income from all bank branches, including recurring deposits, exceeds Rs. 40,000 (Rs. 50,000 for senior citizens) in a financial year, a TDS of 10% is deducted. This interest income should be reported under ‘Income from Other Sources’.
Family Pension
If you receive a pension on behalf of a deceased person, this should be reported under ‘Income from Other Sources’. The total family pension income is taxable at the applicable tax rate. A standard deduction of Rs. 15,000 or one-third of the family pension received (whichever is lower) is allowed.
Taxation of Winnings from Lotteries, Game Shows, and Puzzles
Income received from winning lotteries, game shows (online or TV), races (including horse races), card games, gambling, and similar activities is categorized under ‘Income from Other Sources’. This income is subject to a flat tax rate of 30%, plus a cess, totaling 31.2%.
Dividend Income
Dividends received from investments such as stocks are taxed under ‘Income from Other Sources’. With the recent removal of the Dividend Distribution Tax (DDT), individuals must include dividend income in their total income and pay tax based on their applicable slab rates. Taxpayers can claim an interest expense deduction of up to 20% of the dividend income. Additionally, if the total dividend amount exceeds Rs. 5,000, TDS is deducted at a rate of 10% by the company distributing the dividend.
Agricultural Income
According to income tax law, agricultural income includes:
Revenue earned from agricultural land situated within India.
Income derived from agricultural activities, including cultivation, tilling, sowing, planting, and other operations necessary to make the product market-ready, such as tending, pruning, cutting, and harvesting. Income from saplings or seedlings grown in a nursery also falls under agricultural income.
Income from farm buildings used for agricultural operations.
Virtual Digital Assets (VDAs)
Virtual digital assets, including cryptocurrencies and NFTs, are taxed at a flat rate of 30% on any profit or loss from their sale. Tax regulations stipulate conditions on setting off losses against income from these assets.
Income from Gifts
Income from gifts is governed by Section 56(2)(vi) of the Income Tax Act. Gifts received with or without consideration exceeding Rs. 50,000 in a financial year are subject to tax based on the applicable tax slab.
Gifts in cash exceeding Rs. 50,000 are taxable.
Gifts in kind, where the fair market value exceeds Rs. 50,000, are also taxable.
Interest on Income Tax Refunds
If you have paid more tax than required, you are entitled to a refund of the excess amount. This can occur through Advance Tax (AT), Tax Deducted at Source (TDS), or Self-Assessment Tax (SAT). After filing your income tax return, the interest on the refund amount will be paid to you.
Exempt Income
Certain types of income are exempt from tax. For example, amounts withdrawn from Public Provident Fund (PPF) and Employees' Provident Fund (EPF) after maturity are exempt. The EPF is only tax-exempt after five years of continuous service.
Expenses Allowed to be Deducted from Certain Income Sources
Taxpayers can claim deductions for specific expenses related to income from other sources:
Expenses such as repairs, insurance premiums, and depreciation on plant, machinery, furniture, and buildings are deductible from rental income derived from these assets.
Expenses related to plant and machinery used in earning rental income are deductible.
A standard deduction is allowed for family pensions, with the lower of Rs. 15,000 or one-third of the pension amount being deductible.
For interest received on compensation or enhanced compensation, 50% of the interest amount is deductible.
Under Section 57(iii), other expenses that are not capital in nature and are wholly and exclusively incurred to earn income can be deducted.
For a more comprehensive understanding of each category and to ensure accurate reporting and tax filing, consider consulting a tax professional or using detailed tax software.
Overview of Heads of Income
In India, the Income Tax Department categorizes income into five distinct heads for reporting and tax purposes. Each head of income is subject to different rules and regulations concerning taxation. The five primary heads are:
Income from Salary: This includes all income earned through employment, encompassing wages, salaries, bonuses, and other compensations.
Income from House Property: This category involves income derived from owning property, such as rent received from tenants.
Income from Capital Gains/Loss: This head covers profits or losses arising from the sale of capital assets like property or investments.
Profits and Gains from Business and Profession: This includes income generated from running a business or professional practice.
Income from Other Sources: This head encompasses all other forms of income that do not fit into the aforementioned categories.
Income from Other Sources captures various types of income that are not classified under the other four heads. This category includes a wide range of income types, each with its own set of tax implications, deductions, and exemptions.
Interest Income from Savings Bank Accounts
Interest accumulated in your savings bank account must be reported under the "Income from Other Sources" head in your tax return. It's important to note that banks do not deduct Tax Deducted at Source (TDS) from savings bank interest. However, interest income from fixed deposits and recurring deposits is taxable. Conversely, interest income from savings bank accounts and post office deposits is eligible for certain deductions.
Deduction on Interest Income Under Section 80TTA
For individuals below the age of 60 years and Hindu Undivided Families (HUFs), interest income up to Rs. 10,000 per financial year is exempt from tax under Section 80TTA. This deduction applies to interest earned from:
Savings accounts with banks
Savings accounts with cooperative societies engaged in banking
Savings accounts with post offices
Senior citizens, however, do not benefit from Section 80TTA's deductions.
Taxation of Fixed Deposits
Interest income from fixed deposits (FDs) is considered part of your total income and is taxable according to your applicable tax slab. Banks are responsible for deducting TDS on FD interest when it is earned, not when it is paid.
Example: If you hold an FD with a 5-year maturity period, TDS will be deducted annually on the accrued interest. To manage your tax liabilities effectively, it's advisable to pay taxes on a yearly basis rather than waiting for the FD to mature. Since April 1, 2018, senior citizens have been granted a tax exemption up to Rs. 50,000 on interest income from savings bank accounts, fixed deposits, recurring deposits with banks and post offices under Section 80TTB.
Avoiding TDS on Fixed Deposits
Banks must deduct TDS if the total interest income from all branches exceeds Rs. 40,000 in a financial year (previously Rs. 10,000 before FY 2019-20). The TDS rate is 10% if your PAN details are provided and 20% if PAN details are absent. Details of TDS deductions on FD interest can be found in Form 26AS. To avoid TDS on fixed deposits, submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank, requesting no TDS deduction. These forms are only valid for one financial year and must be submitted annually. If you miss this step, you can claim a refund by filing your income tax return.
Reporting Fixed Deposits and Recurring Deposits
Reporting Fixed Deposits
If you have multiple fixed deposits, sum up the total interest earned from all FDs and report it under ‘Other interest income’ in your tax return.
Reporting Recurring Deposits
When the total interest income from all bank branches, including recurring deposits, exceeds Rs. 40,000 (Rs. 50,000 for senior citizens) in a financial year, a TDS of 10% is deducted. This interest income should be reported under ‘Income from Other Sources’.
Family Pension
If you receive a pension on behalf of a deceased person, this should be reported under ‘Income from Other Sources’. The total family pension income is taxable at the applicable tax rate. A standard deduction of Rs. 15,000 or one-third of the family pension received (whichever is lower) is allowed.
Taxation of Winnings from Lotteries, Game Shows, and Puzzles
Income received from winning lotteries, game shows (online or TV), races (including horse races), card games, gambling, and similar activities is categorized under ‘Income from Other Sources’. This income is subject to a flat tax rate of 30%, plus a cess, totaling 31.2%.
Dividend Income
Dividends received from investments such as stocks are taxed under ‘Income from Other Sources’. With the recent removal of the Dividend Distribution Tax (DDT), individuals must include dividend income in their total income and pay tax based on their applicable slab rates. Taxpayers can claim an interest expense deduction of up to 20% of the dividend income. Additionally, if the total dividend amount exceeds Rs. 5,000, TDS is deducted at a rate of 10% by the company distributing the dividend.
Agricultural Income
According to income tax law, agricultural income includes:
Revenue earned from agricultural land situated within India.
Income derived from agricultural activities, including cultivation, tilling, sowing, planting, and other operations necessary to make the product market-ready, such as tending, pruning, cutting, and harvesting. Income from saplings or seedlings grown in a nursery also falls under agricultural income.
Income from farm buildings used for agricultural operations.
Virtual Digital Assets (VDAs)
Virtual digital assets, including cryptocurrencies and NFTs, are taxed at a flat rate of 30% on any profit or loss from their sale. Tax regulations stipulate conditions on setting off losses against income from these assets.
Income from Gifts
Income from gifts is governed by Section 56(2)(vi) of the Income Tax Act. Gifts received with or without consideration exceeding Rs. 50,000 in a financial year are subject to tax based on the applicable tax slab.
Gifts in cash exceeding Rs. 50,000 are taxable.
Gifts in kind, where the fair market value exceeds Rs. 50,000, are also taxable.
Interest on Income Tax Refunds
If you have paid more tax than required, you are entitled to a refund of the excess amount. This can occur through Advance Tax (AT), Tax Deducted at Source (TDS), or Self-Assessment Tax (SAT). After filing your income tax return, the interest on the refund amount will be paid to you.
Exempt Income
Certain types of income are exempt from tax. For example, amounts withdrawn from Public Provident Fund (PPF) and Employees' Provident Fund (EPF) after maturity are exempt. The EPF is only tax-exempt after five years of continuous service.
Expenses Allowed to be Deducted from Certain Income Sources
Taxpayers can claim deductions for specific expenses related to income from other sources:
Expenses such as repairs, insurance premiums, and depreciation on plant, machinery, furniture, and buildings are deductible from rental income derived from these assets.
Expenses related to plant and machinery used in earning rental income are deductible.
A standard deduction is allowed for family pensions, with the lower of Rs. 15,000 or one-third of the pension amount being deductible.
For interest received on compensation or enhanced compensation, 50% of the interest amount is deductible.
Under Section 57(iii), other expenses that are not capital in nature and are wholly and exclusively incurred to earn income can be deducted.
For a more comprehensive understanding of each category and to ensure accurate reporting and tax filing, consider consulting a tax professional or using detailed tax software.
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