Friday, May 9, 2014

INCOME FROM OTHER SOURCES - INCOME TAX SHORT NOTES




Brief History of Income Tax in India
In India, Income tax was introduced for the first time in 1860, The Income Tax Act 1961 has been brought into force with 1 April 1962. It applies to the whole of India including Jammu and Kashmir.
All income shall be classified under the following heads for the purpose of computation of taxable amount subject to certain Exemptions’ and deductions.

THE FIVE HEADS OF INCOME ARE:
INCOME FROM OTHER SOURCES

Income from Other Sources is a residuary head of income. Any item of income chargeable to tax but does not fall within the ambit of the other four specific heads of income shall be included under this head of income.

Chargeability – Section 56
The following income shall be charged to tax only under the head “Income from Other Sources”:
  • Dividend income covered by sub-clause (a) to (e) of clause (22) of Section 2.
  • Income by way of winnings from lotteries, cross word puzzles, races including horse race, card games and other games of any sort, gambling, betting, etc. It requires mention here that such winnings are chargeable to tax u/s 115BB at a flat rate of 30%.
  • Any sum of money, the aggregate value of which exceeds Rs.50, 000 received from any person without consideration by an individual or Hindu Undivided Family .
However, exemption is granted in respect of any sum of money received –
  1. from any relative; or
  2. on the occasion of marriage of individual; or
  3. under a Will or by way of inheritance; or
  4. in contemplation of death of the payer or
  5. from a local authority; or
  6. from any fund, foundation, university, other educational institution, hospital, medical institution, any trust or institution referred to in Section 10(23C); or
  7. From charitable institutions registered u/s 12AA.
In respect of above gifts, there is no ceiling limit and therefore, entire amount is exempt from chargeability.

The defintion of the term ‘relative’ for this purpose is as under :

a)husband or wife of individual;
b)brother or sister of the individual;
c)brother of husband of the individual;
d)brother of wife of the individual;
e)sister of husband of the individual;
f)sister of wife of the individual;
g)brother of father of the individual;
h)brother of mother of the individual;
i)sister of father of the individual;
j)sister of mother of the individual;
k)lineal ascendant of the individual (say, grandfather)
l)lineal descendant of the individual (say, son, grandson, daughter)
m)lineal ascendant of the husband of the individual
n)lineal descendant of the husband of the individual
o)lineal ascendant of the wife of the individual (say, wife’s father)
p)lineal descendant of the wife of the individual;
q)wife or husband of the relatives listed at serial numbers (b) to (p)

INCOME CHARGEABLE UNDER THIS HEAD, ONLY IF NOT CHARGEABLE

UNDER THE HEAD ‘PROFITS AND GAINS OF BUSINESS OR PROFESSION.


The following income shall be chargeable to tax under this head of income only if it is not taxable under the head “Profits and Gains of Business or Profession”:

(a)Interest on securities (State and Central Government securities and debentures);
(b)Any sum collected from employees towards their share of contribution to any Welfare Fund Account :
(c)Income from letting of machinery, plant and furniture; and
(d)Income from letting of machinery, plant and Furniture together with building, if the letting of the building is inseparable to the letting of other assets.

INCOME CHARGEABLE UNDER THIS HEAD ONLY IF NOT CHARGEABLE UNDER THE HEAD “PROFITS AND GAINS OF BUSINESS OR PROFESSION” OR UNDER THE HEAD “SALARIES”

Any sum received under a Keyman insurance policy including bonus is chargeable under this head when it is received by any person other than the employer who took the policy and the employee in whose name the policy was taken.

DIVIDEND
Section 2(22) defines ‘Dividend’ to include –
Any distribution by a company to its shareholders to the extent of accumulated profits whether capitalized or not resulting in the release of all or any part of the assets of the company,

b)any distribution to its shareholders by a company –
  • Of debentures, debenture-stock or deposit-certificates with or without interest; 
  • Distribution of bonus shares to the preference shareholders by the company, to the extent of accumulated profits, whether capitalized or not,
any distribution made to the shareholders by a company on its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company, whether capitalized or not,

Any distribution by a company to its shareholders on account of reduction of share capital to the extent of which the company possesses accumulated profits, whether capitalized or not.

Any payment to the extent of accumulated profits by a company, not being a company in which public are substantially interested, of any sum by way of: Sec.2(22)(e)
  1. Loan or advance to a shareholder who holds the beneficial ownership of equity shares carrying not less than 10% voting power,
  2. loan or advance to any concern (HUF, firm, AOP, Body of Individuals or a company) in which such shareholder is a member or partner holding substantial interest (20% or more beneficial interest at any time during the previous year),
  3. Any payment on behalf of or for the individual benefit of any such shareholder made to any person.
Exceptions:
  1. Any advance or loan to a shareholder or the concern in which the shareholder has substantial interest by a company will not be deemed as dividend, if the loan or advance is given during the normal course of its business provided the lending of money is a substantial part of the business of the company.
  2. Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of Section 77A of the Companies Act, 1956, shall not be regarded as dividend. Such buyback of shares attracts capital gains tax liability in the hands of the shareholder u/s 46A.
  3. Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company) shall not be treated as dividend.
 WINNINGS FROM LOTTERY, ETC. – SECTION 115BB

Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gabling or betting of any form, tax shall be calculated at the rate of 30% of such income plus surcharge.

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