Topic - Income From Other Sources

INTRODUCTION
The amount of income that is used to calculate an individuals or a companys income tax due. Taxable income is generally described as gross income or adjusted gross income minus any deductions,exemptions or other adjustments that are allowable in that tax year.

Taxable income is also generated from appreciated assets that have been sold or capitalized during the year and from dividends and interest income. Income from these sources is generally taxed at a different rate and calculated separately by the tax entity. Individuals may choose to use a standard deduction amount for a given tax year. This amount is subtracted from gross income to arrive at the final taxable income figure. If individual deductions are claimed, the person or company will hope to have a total amount deducted from gross income lower than what would be achieved using the standard deduction. Some typical deductions that lower many tax bills include IRA contributions and certain business expenses.

In this project I am presenting a case study done by me on on The Income Tax levied on a Person under the Heads-Income from Other Sources and Income From Salaries. As per Section 2 (24) of the Income Tax Act, 1961, the term Income includes:

1. Profits and Gains 2. Dividends 3. Voluntary contributions received by a charitable or religious trust or a specified institution (e.g. a specific research association, a sport association, a notified charitable or public religious trust), or by an electoral trust. 4. Perquisites, profits in lieu of salary or any special allowance or benefit specifically granted to an employee to meet expenses for the performances of his duties (e.g. Entertainment Allowance) taxable under the head Income from Salaries. 5. Allowance to an employee to meet his personal expenses at office, or to compensate him for the increased cost of living (e.g. Dearness Allowance). 6. Benefit or perquisite obtained from a company by a director or a person having substantial interest in the company or their relatives. 7. Benefit or perquisites obtained by a representative assessee (e.g. trustee), or a beneficiary, or any amount paid by the representative assessee for the benefit of beneficiary. 8. Any sum chargeable-

a. Under Section 28 (ii) & (iii) of the Act (compensation for termination of a contract for directorship or agency; income from services to members earned by a trade associated etc.); b. Under Section 41 (amount chargeable to tax as income from business e.g. recovery of bad debts, sale of scientific research assets etc.) or c. Under Section 59 (amount, chargeable to tax as income from other sources e.g. recovery of expenses claimed earlier). 9. Profits on sale of an import license, taxable u/s 28 (iii a). 10. Export cash assistance received from Government, taxable u/s 28 (iii b). 11. Refund of customers or excise duty received against exports, taxable u/s 28 (iii c). 12. Benefit or perquisite from Business or Profession (e.g. a gift received by a doctor from a patient), taxable u/s 28(iv). 13. Any interest, salary, bonus, commission or remuneration due to or received by a partner from a firm, to the extent allowed to be deducted u/s 40(b), taxable u/s 28 (v).

14. Capital Gains chargeable u/s 45 of the Income Tax Act, 1961. 15. Profit of any business of Insurance carried on by a mutual insurance company or a co-operative society, taxable cu/s 44 or the First Schedule to the Act. 16. Winnings from lotteries, prizes by draw of lots or by chance, crossword puzzles, races, including horse races, card games, game shows, entertainment programme on television in which people compete to win prizes, gambling or betting. 17. Contribution from employees to Provident Fund, or superannuation fund, or Employees Insurance Fund, etc, deducted by the employer from the salaries of the employees. 18. Any sum received under a Keyman Insurance Policy (i.e. a policy taken on a key person) including bonus on such policy. 19. Any sum referred to u/s 28 (v a) (i.e. noncompensation, etc.) 20. Aggregate amount exceeding Rs50, 000 received by an individual or HUF, from any person/persons without consideration, subject to certain exceptions.

21. Gifts or deemed gifts exceeded Rs 50, 000, received by an individual or HUF, subject to certain exceptions.

Section 14 of the Indian Income Tax Act 1961 gives classification of income under different heads of income. A person may receive income from different sources but it must be classifies under this section. Deductions have also been stated to ascertain the income chargeable to tax under the specified heads of Income. Therefore, it becomes necessary to classify income under different heads of income. All incomes shall, for the purposes of charge of income-tax and computation of total income shall be classified under the following heads of income: Income from Salaries Income from Interest on Securities. (Omitted by the Finance Act, 1988 in the Assessment Year 19891990) Income from House Property Income from Profits and Gains on Profession

Income from Capital Gains Income from other sources

Income of every kind, which is not chargeable to income tax under the heads 1) salary 2) income from house property, 3) profits and gains of business and profession, and capital gains can be taxed under the head "income from other sources". However such income should also not fall under income not forming part of total income under the IT Act. The following income shall be chargeable to income tax

under the head "Income from other sources", namely: 1.Dividend; 2. Any annuity due or commuted value of any annuity paid under section 280D. 3. Any winning 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.

4. Any sum, received by the assessee from his employees as contributions to any provident fund or Superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948 (34 of 1948), or any officer fund for the welfare of such employees, if such income is not chargeable to incometax under the head "Profits and gains of business or profession";

5. Income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income -- tax under the head "Profits and gains of business or profession.

6. Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income tax under the head "Profits and gains of business or profession." 7. Any sum received under a Keyman insurance policy, including the sum allocated by way of bonus on such policy, if such income is not chargeable to income tax under the heads "Profits and gains of business and profession" or under the head "Salaries". (Keyman insurance policy means a life insurance policy taken by a person on the life of another person who is/ was the employee of the 1st mentioned person or who is/was connected in any manner whatsoever with the business

of the 1st mentioned person. So, basically "income from other sources" is the residuary head of income, which takes within its ambit any income, which does not specifically fall under any other head of income.

Format:Computation of Income from Other Sources Particulars Amt Amt Amt 1 Dividend a) On shares of foreign xx companies b) On shares of cooperative xx societies xxx Less: Collection Charges xx a)

b) Interest on Capital Borrowed 2 Interest a) On deposits with Banks b) On deposits with Companies c) On deposits with any other person d) On Loans Given e) On Government Securities f) On Non-Government Securities Less: Collection Charges a) Interest on Capital b) Borrowed 3 Rent a) From house property sublet b) From other assets let-out Less: Collection Charges a) b) Expenses on assets let out c) Depreciation of assets let out d) Interest on capital borrowed 4 Certain Casual Income a) Winnings from lotteries b) Winnings from horse races c) Winnings from card games d) Gambling/betting income e) Income from crossword puzzle

xx

(xx) xx xx xx xx xx xx

xxx

xx xx (xx) xx xx xx xx xx xx (xx) xx xx xx xx xx xxx xxx xxx

5 Sums received from employees as contributions to Provident Fund or other Funds Less: Amount deposited before due date 6 Other incomes a) Royalty on Books Less: Expenditure in connection with preparation of manuscript b) Directors Fees c) Directors Commission for underwriting shares, etc. d) Examinership remuneration received by a teacher from University/Board Less: Expenses, if any e) Family pension Less: Deductions 33 1/3% or Rs. 15,000/-, whichever is less f) Royalty from a mine g) Agriculture income from land situated in a foreign country h) Income from undisclosed sources i) Commission from procuring insurance j) Salary of M.P./M.L.A. k) Tips received by a hotel waiter/taxi driver l) Withdrawal from NSS,1987 A/c m) Annuity from LIC of India

xx (xx) xx (xx)

xxx xxx

xxx xxx xxx

xx (xx)

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

n) Certain incomes from other persons included in the assessees total income (For example, minor child, spouse, deceased person, etc.) o) Income received by nonprofessional writers, inventors, designers, etc. p) Income from vacant lands not being agricultural lands q) Amount received under Keyman Insurance Policy r) Gift in excess of Rs. 50,000 (subject to exceptions) Net Taxable Income

xxx

xxx xxx xxx xxx XXX

E-FILING ITR FORM

E-return Beginning has been made in 2003 for electronic filing of return under Electronic Furnishing of returns of Income Scheme, 2003. Filing of e-return is compulsory for corporate employees. Due dates for filing return - The due dates for filing return are as follows -

* (a) Individuals having only salary income (b) Noncorporate assessees (Individuals, HUF, partnership firms or societies) having income from business or profession but who do not have to get their accounts audited under Income Tax or any other law - 31st July * (a) Non corporate assessees (Individuals, HUF, partnership firms or societies) having income from business or profession and who have to get their accounts audited (b) A working partner where the firm in which he is a working partner has to get its accounts audited (c) Corporate Assessee (d) Persons who have to file return under one by six scheme 30th September (Till 2007, it was 31st October).

Filing of Income Tax returns is a legal obligation of every Individual/HUF whose total income for the previous year has exceeded the maximum amount that is not chargeable for income tax under the provisions of the I.T Act, 1961. Income Tax Department has introduced a convenient way to file these returns online using the Internet.

The process of electronically filing Income tax returns through the internet is known as e-filing. It is mandatory for companies and Firms requiring statutory audit u/s 44AB to submit the Income tax returns electronically for AY 2007-08 onwards. E-filing is possible with or without digital signature. A digital signature is an electronic signature that can be used to authenticate the identity of the sender of a message or the signer of a document, and possibly to ensure that the original content of the message or document that has been sent is unchanged. Digital signatures are easily transportable, cannot be imitated by someone else, and can be automatically time-stamped. The ability to ensure that the original signed message arrived means that the sender cannot easily repudiate it later. A digital signature can be used with any kind of message, whether it is encrypted or not, simply so that the receiver can be sure of the sender's identity and that the message arrived intact. There are three ways to file returns electronically: Option 1: Use digital signature, in which case no further action is required. Option 2: File without digital signature, in which case the duly signed ITR-V form is to be submitted to CPC Bangalore using Ordinary Post or Speed Post

within 120 days of transmitting the data electronically. This completes the Return filing process for non-digitally signed returns. Option 3: File through an e-return intermediary who would do e-Filing and also assist the Assessee file the ITR -V Form. Following are the steps to file ones Income Tax returns online: Step 1: Select appropriate type of Return Form from the website www.incometaxindiaefiling.gov.in . Step 2: Download Return Preparation Software for selected Return Form from the download section. Step 3: Fill your return offline and generate a XML file. Step 4: Register and create a user id/password. Every new user has to register at the following website, www.incometaxindiaefiling.gov.in in order to avail the e-Filing facility.

 Step 5: Login and click on relevant form on left panel and select "Submit Return". Step 6: Browse to select XML file and click on "Upload" button . Step 7: On successful upload acknowledgement details would be displayed. Click on "Print" to generate printout of acknowledgement/ITR-V Form.

In case the return is digitally signed , on generation of "Acknowledgement" the Return Filing process gets completed. Assessee may take a printout of the Acknowledgement for his record. In case the return is not digitally signed , on successful uploading of e-Return, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form. The tax payer has to fill-up the

verification part and verify the same. A duly verified ITR-V form should be submitted to CPC Benagaluru using Ordinary Post or Speed Post within 120 days of transmitting the data electronically. This completes the Return filing process for non-digitally signed Returns.

PAN Card
Permanent Account Number (PAN) refers to a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department in India. It is a must to have a PAN number for all those who file their income tax returns, because from 2005 onwards, it has been made mandatory by the Income Tax Department to quote the PAN on return of income as

well as on all correspondence with any income tax authority in the country. Also, it is now compulsory to quote PAN in all documents pertaining to financial transactions notified from time to time by the Central Board of Direct Taxes, such as sale and purchase of immovable property or motor vehicle or payments in cash, of amounts exceeding a certain limit to hotels and restaurants, or in connection with travel to any foreign country. It is also mandatory to mention PAN for obtaining a telephone or cellular telephone connection. Likewise, PAN has to be mentioned for making a time deposit exceeding Rs. 50,000/- with a Bank or Post Office or for depositing cash of Rs. 50,000/or more in a Bank. Application for fresh allotment of PAN can be made through Internet. The PAN application can be downloaded from the website of UTI Investor Services Ltd (the authorized agency to manage IT PAN service Centers in various cities) or from the website of National Securities Depository Ltd (NSDL)or printed by local printers or photocopied (on A4 size 70 GSM paper) or obtained from any other source. The form is also available at IT PAN Service Centers and TIN Facilitation Centers.

You will need a recent color photograph (stamp size: 3.5 cm x 2.5 cm) to attach on the form. You must mention the designation and code of the concerned Assessing Officer of the Income Tax department in Form 49A. You can get this from the IT PAN Service Centre mentioned in the websites listed above. Also, the application shall have to be accompanied by a proof of identity as well as a proof of residence. The filled application form has to be submitted at your nearest IT PAN Service Centre or TIN Facilitation Centre along with the requisite fee. The charges for applying for PAN online or offline are the same i.e. Rs. 94 (including service tax) for Indian communication address and Rs.744 (including service tax) for foreign communication address, i.e. there are no additional charges. Payment of application fee can be made through credit/debit card or net-banking. Once the application and payment is accepted, the applicant is required to send the supporting documents through courier/post to NSDL/UTITSL. Only after the receipt of the documents, PAN application would be processed by NSDL/UTITSL.

Case Study
After having spoken to Prof.Shyam, employed with RM College, he parted with the following income and expenses. 1. Gross salary 25000p.m. 2. Rent free bunglow, perquisite value of which is 4000 Per annum. 3. Leave salary of 12000.

4. Bonus 20000. 5. Arrears of salary of last three years 200000. 6. Professional tax deducted 200 pm, from salary. 7. Examinership remuneration from his college 6000 8. He received 5000 as examinership fees from Mumbai University. 9. He has spent 4400 for purchase of books for the purpose of his employment. 10. He received 3000 for writing articles in the Economic Times.

11. Interest on postal savings bank a/c 2000 12. Received from giving tuitions to students 30000 (for which he spent about 20% on conveyance. 13. Dividends on units from Unit Trust on India 3500. 14. Dividends from Indian companies 7500(Bank debited 50 as collection charges) 15. Received Award for the best teacher from Govt. of

Maharashtra 11000 16. He is a severely physically handicapped person (to the extent of 85%) 17. He purchased National Savings Certificates worth 125000 and contributed 70000 to his ppf a/c.

COMPUTATION OF TOTAL INCOME

PARTICULARS A INCOME FROM SALARY
SALARY(25000X12) PERQUISITE VALUE LEAVE SALARY 300000 4000 12000

AMOUNT

AMOUNT

BONUS ARREARS OF SALARY EXAMINERSHIP REMUNERATION

20000 200000 6000

GROSS SALARY LESS:DEDUCTION U/S16

PROFESSION TAX U/S16

542000
(2400)

539600

INCOME FROM OTHER SOURCES

EXAMINERSHIP REMUNERATION RECEIVED FROM ECONOMIC TIMES DIVIDENDS (UTI)(EXEMPT) 5000 3000

TUITIONS TO STUDENTS

30000

LESS: SPENT ON CONVEYANCE 6000 20% DIVIDENDS FROM UTI/INDIAN CO.(EXEMPT) AWARD FOR BEST TEACHER FROM GOVT. OF MAHARASHTRA (EXEMPT U/S10(17A)

24000

INCOME FROM OTHER SOURCES

32000

C GROSS TOTAL
INCOME(A+B) D LESS:DEDUCTIONS UNDER VI A U/S 80C: NSCPURCHASED
PPF TOTAL LIMITED TO

571600

125000 70000 195000 100000

U/S 80U:
PERSON (85%)

HADICAPPED 100000 200000

E NET TAXABLE INCOME

(C-D)

371600