Income from Other Sources
What falls here
Section 56 catches income not covered by the other four heads: interest on securities and deposits, dividends, winnings from lotteries, crossword puzzles, races and game shows, rent from plant and machinery, and gifts.
Core rules
- Interest is taxed on accrual, with a 25% deduction u/s 57(iv) for interest on compensation or enhanced compensation, taxed in the year of receipt.
- Family pension gets a deduction u/s 57(iia) of one-third of the pension or Rs.15,000, whichever is less.
- Gifts u/s 56(2)(x): the aggregate of money and specified property received without consideration or for inadequate consideration is taxable if it exceeds Rs.50,000 in a year, except from relatives, on marriage, under a will or inheritance, and similar exempt cases.
- Winnings u/s 115BB are taxed at a flat 30% with no deduction, no basic exemption adjustment and no set-off of losses; TDS applies u/s 194B/194BA.
Worked example
A taxpayer receives Rs.30,000 from a friend, Rs.40,000 from another friend, Rs.25,000 from his brother and Rs.1,00,000 as a wedding gift from a colleague. Gifts from friends aggregate Rs.70,000, which exceeds Rs.50,000, so the whole Rs.70,000 is taxable. The brother is a relative, and a wedding gift is exempt from any person, so Rs.1,25,000 is not taxed.
Traps
- Applying the Rs.50,000 limit gift by gift instead of on the aggregate.
- Missing that once the threshold is crossed, the entire amount is taxable, not just the excess.
- Allowing expenses or losses against casual income taxed u/s 115BB.
- Overlooking the family pension deduction before computing total income.