Income from Other Sources: formula sheet

Key formulas

Residuary rule

Income under this head = Taxable income − (exempt income + income taxable under salary, house property, business or profession, capital gains)

Use this as a test. The head applies only when no other head covers the income.

Net income under the head

Gross receipts chargeable − permitted deductions

Permitted deduction means non-capital expenditure incurred wholly and exclusively to earn that income, not personal expenditure.

Winnings from lotteries, games, gambling and similar

Taxable = gross winnings; tax at the special rate of 30%

No deduction for expenditure or allowance, such as ticket cost. For an individual or HUF, any unexhausted basic exemption limit cannot be adjusted against winnings taxed at this special rate. It can still be used against other income. Surcharge and cess apply as per the rate provisions.

Dividend: interest deduction cap

Deduction = lower of (interest on money borrowed to earn the dividend, 20% of dividend included)

Under the Income-tax Act, 2025, the only deduction against dividend is interest on money borrowed to earn it, capped at 20% of the dividend. No other expense is deductible against dividend.

Specific inclusions vs general charge

Taxable here if listed OR if income of any kind not excluded and not under another head

The list of specific incomes is illustrative. Do not say an unlisted income is exempt.

Taxability of company dividend

Dividend (gross) = Income from other sources, taxed in the shareholder's hands

Include the gross amount. TDS deducted is only a credit against tax.

Timing of dividend

Final: tax year of declaration | Interim: tax year when unconditionally made available

Check the date given in the question before picking the tax year.

Deemed dividend on loan or advance

Deemed dividend = Lower of (loan or advance, accumulated profits on the date the loan or advance is paid)

Test each payment separately. Applies only to a closely held company, and only if the borrower is a beneficial owner of at least 10% voting power, or a concern in which such a person has a substantial interest (at least 20% of voting power in a company, or at least 20% of profits in other concerns).

Deduction against dividend

Interest deduction = Lower of (interest actually paid to earn the dividend, 20% × dividend income)

The cap applies to dividend income only. No other expense is allowed against dividend income.

Other deemed dividend cases

Deemed dividend = Value distributed, limited to accumulated profits (on liquidation: accumulated profits immediately before liquidation, including capitalised profits)

Covers preference-share distributions, liquidation and capital reduction. Bonus shares count only when issued to preference shareholders.

Loan carve-out

Loan in ordinary course by a company whose business is substantially money-lending = no deemed dividend

Also check that the company is closely held.

Money received without consideration

Taxable = total money received in the tax year, if total > ₹50,000; otherwise nil

Aggregate all non-exempt receipts of money from all persons. If the total crosses ₹50,000, the whole total is taxed.

Immovable property received without consideration

Taxable = stamp duty value of the property, if that value > ₹50,000; otherwise nil

Applies to land or building held as a capital asset by the receiver. The stamp duty value is taxable if it exceeds ₹50,000.

Immovable property for inadequate consideration

Taxable = stamp duty value − consideration, if the difference > higher of ₹50,000 and 10% of consideration; otherwise nil

If the limit is crossed, the whole difference is taxed, not only the excess over the limit.

Specified movable property without consideration

Taxable = aggregate FMV, if aggregate FMV > ₹50,000; otherwise nil

Covers shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art and bullion. The FMV of these items is aggregated and compared with ₹50,000.

Specified movable property for inadequate consideration

Taxable = aggregate FMV − aggregate consideration, if the difference > ₹50,000; otherwise nil

The test is on the aggregate of all such property received in the tax year, not item by item. There is no 10% tolerance for movable property. Only the ₹50,000 limit applies.

Date for stamp duty value (agreement rule)

Use stamp duty value on the date of agreement, if the consideration (or part) was paid by account payee cheque/draft, bank electronic mode or other prescribed mode on or before that date

Otherwise use the value on the date of registration.

Meaning of relative (for an individual)

Spouse; brother or sister; brother or sister of spouse; brother or sister of either parent; lineal ascendant or descendant; lineal ascendant or descendant of spouse; and the spouse of each of these persons

For a HUF, any member of the family is a relative. Cousins and friends are not relatives.

Excess share premium (earlier rule)

Taxable excess = Consideration received − Fair market value of shares (only if consideration > FMV)

Applied to a closely held company issuing shares to a resident. Omitted for issues from 1 April 2024 (financial year 2024-25 onwards). Use only if the question is framed under the earlier rule.

Winnings from games and lotteries

Tax = 30% × Gross winnings (plus surcharge at the normal applicable rate, plus cess)

No deduction for expenses, ticket cost or losses, and no Chapter VI-A deduction. For a resident individual, no basic exemption adjustment and no rebate for low income against the tax on this income. The 15% surcharge cap does not apply.

Keyman insurance receipt

Taxable business income = Sum received (including bonus)

Taxed as business income of the recipient, including a person to whom the policy was assigned. Not taxed under Other Sources. Premium paid is deductible as a business expense. Life insurance maturity exemption is not available.

Termination compensation

Taxable salary = Compensation received − Exemption (if any specified exemption applies)

Generally profits in lieu of salary. Check the conditions before claiming any exemption.

Interest on enhanced compensation

Taxable = Interest received − 50% of interest received

Taxed in the year of receipt, whichever year it relates to. No other deduction is allowed.

Interest on securities

Taxable = Interest chargeable − commission or remuneration paid for realising it − other expenditure (only as the Act permits)

Applies only if the interest is not business income. The commission or remuneration must be paid to a banker or other person for realising the interest. Check the specific exemption provisions before taxing. No 50% deduction.

Rent from machinery, plant or furniture

Taxable = Rent − current repairs − insurance premium − depreciation − other expenditure wholly and exclusively for earning the rent (where applicable)

Applies if not business income. If let with a building and the rent is inseparable, the whole rent is taxed under income from other sources.

Sub-letting income

Taxable = Sub-letting rent − rent paid to the owner − other expenses incurred wholly and exclusively for earning it

No standard deduction. The sub-lessor is not the owner, so this is not house property income.

Head test

Business income > other sources if the activity is a business; other sources is the residual head

Always decide the head before applying deductions.

General deduction rule

Allowed = expenditure wholly and exclusively for earning the income, if not capital and not personal

Applies to interest on securities, rent from machinery let on hire, and similar receipts. Include the actual expense only if the question gives it and it relates to that income.

Dividend income deduction

Deduction = lower of (interest actually paid on borrowed money for investment) and (20% × dividend income)

Under the Income-tax Act, 2025 (tax year 2026-27), only interest is allowed. No other expense, such as commission or demat charges. The 20% is on gross dividend before any deduction.

Family pension deduction

Deduction = lower of (1/3 × family pension) and (fixed limit)

Under the Income-tax Act, 2025 for tax year 2026-27, the fixed limit is ₹25,000 if you are taxed under the default (new) regime and ₹15,000 if you opt out of it. Both regimes continue for this tax year. Use whichever the question states or implies, and state your assumption.

Gambling-type winnings

Deduction = Nil

Covers lottery, crossword puzzles, races including horse races, card games, other games, gambling and betting. Even ticket cost or entry fee is not allowed.

Machinery, plant or furniture let on hire

Allowed: current repairs, insurance, depreciation, plus other expense wholly and exclusively incurred

Applies when the letting is not part of a business and the rent is taxed under this head.

Barred amounts

No deduction: personal expenses; interest or salary payable outside India without required tax deduction or payment; capital expenditure

State the rule and the reason in the answer.

Quick revision

• Income from Other Sources is the residual head, so test the other heads first.
• Income must be chargeable and not exempt before it is taxed here.
• Dividend is taxable under Income from Other Sources. Only interest expenditure is allowed against it, subject to the statutory cap. Confirm the cap rate and the income it covers in the Income-tax Act, 2025 as amended by the Finance Act, 2026. No other expense, such as commission or remuneration, is deductible against dividend.
• Interest on securities and similar items are taxed here unless they are business income for the taxpayer.
• Receipts without or below adequate consideration are taxed only if the conditions and thresholds are met.
• Check the relationship of the donor and the type of receipt for exclusions before taxing a gift.
• Share premium: the angel tax charge (old section 56(2)(viib)) on a closely held company issuing shares above fair market value was removed from AY 2025-26 for all investors. Check the current law and the Finance Act, 2026 before you apply any rule here.
• Do not apply fair market value computations or exception lists of the old angel tax charge to a share issue premium. Test shares received by a recipient below fair value separately under the gift-style rules.
• Allow only the deductions that the Act permits against each item of income.
• Personal expenses and capital expenses are not deductible in computing this head.
• State the section number only if you are sure, and otherwise state the rule in words.
• Finish every answer with a clear conclusion giving the amount taxed and the head.

Common mistakes

• Treating this head as a first-choice head and putting every interest or rent receipt here. Fix: Always ask first whether a business, a let-out building or a capital asset transfer is the source. Use this head only for what is left over.
• Deducting ticket cost or other expenses from lottery or game winnings. Fix: Winnings are taxed on the gross amount at the special rate. State that no deduction or allowance is available.
• Treating the whole loan as deemed dividend even when accumulated profits are lower. Fix: Always write 'lower of loan and accumulated profits' as the first line of the working.
• Applying the deemed dividend rule to a company in which the public is substantially interested. Fix: Tick the company's status before any calculation. If it is not closely held, the loan rule does not apply.
• Taxing only the excess over ₹50,000. Fix: Remember it is a threshold. Once crossed, the whole amount is taxed. A total of ₹55,000 gives ₹55,000, not ₹5,000.
• Treating a cousin, friend or uncle's spouse as a relative. Fix: Check the person against the statutory list. Cousins and friends are outside it. A brother or sister of your parent, and that person's spouse, are inside it.
• Applying the excess share premium tax to an issue made on or after 1 April 2024. Fix: Remember it is omitted for issues from financial year 2024-25 onwards. Apply it only if the question is clearly framed under the earlier rule for an earlier issue.
• Deducting the lottery ticket cost or other expenses from winnings. Fix: No expenditure is allowed. Tax the gross amount at 30%.
• Allowing legal expenses against interest on enhanced compensation Fix: Remember that the only deduction is a flat 50%. Any other cost is ignored.
• Spreading enhanced compensation interest over the years it relates to Fix: State clearly that it is taxed in the year of receipt, in full.

Exam tips

• In theory questions, begin with one line: 'This is the residuary head; it applies only when no other head covers the income.' Then give the list of inclusions.
• In case-scenario MCQs, identify the source first. A word like 'interest' or 'rent' alone does not decide the head.
• Always write 'no deduction' when winnings from lotteries or games appear in a computation. Examiners test this.
• For dividend, show the 20% cap working in a separate line so partial marks are safe.
• Use the Income-tax Act, 2025 vocabulary: tax year, not assessment year. Quote a section number only if you are sure of it.
• Read the first line of the case for the company's status. 'Closely held' decides whether the loan rule applies.
• Show the lower-of working explicitly for deemed dividend and for the 20% cap. Marks are given for the comparison.
• Write the grounds for each disallowed expense in one sentence, using provision, facts and conclusion.