Income from Other Sources: formula sheet

Key formulas

Residuary rule

Income from Other Sources = Taxable income − income under Salaries, House Property, Business/Profession and Capital Gains

Use this head only when no other head applies and the income is not exempt.

Basis of charge

Section 56(1): income of every kind, if taxable and not under the other four heads

Section 56(2) lists specific incomes, but the list is not exhaustive.

Order of classification

Salaries → House Property → Business/Profession → Capital Gains → Other Sources

Test the heads in this order. Other Sources is always the last.

Typical items under section 56(2)

Dividends, winnings from lotteries/games/races, interest on securities (non-business), gifts under 56(2)(x)

Bank interest also falls here when it is not business income.

Head of income

Dividend, interest on securities, bank interest → Income from Other Sources (investor)

If securities are held as stock-in-trade, interest is business income.

Rate on dividend (resident)

Taxed at normal slab rates

No special rate. Dividend distribution tax on companies ended from FY 2020-21.

Deduction against dividend

Allowed deduction = lower of (interest expense paid, 20% × dividend income)

Only interest expense qualifies. No other expense is allowed.

Taxable dividend

Taxable dividend = Dividend − allowed interest deduction

Gross the dividend up first if TDS was cut.

TDS on dividend (resident)

10% when dividend from a company to a resident exceeds ₹10,000 in the year

Threshold applies from FY 2025-26 (earlier ₹5,000). Once crossed, TDS is on the whole amount.

TDS on interest on securities

10% for residents under Sec 193, with exceptions

Exceptions include interest on listed debentures in demat form and certain government securities (for example, 8% Savings Bonds up to a threshold). Check the question for conditions.

TDS on bank interest

10% when interest from a bank exceeds ₹50,000 (₹1,00,000 for senior citizens) in the year

Thresholds from FY 2025-26. The threshold is per bank, per year.

Savings interest deduction (old regime)

Non-seniors: up to ₹10,000 on savings account interest only (Sec 80TTA). Senior citizens: up to ₹50,000 on savings and deposit interest (Sec 80TTB), in place of 80TTA.

Both are available only under the old regime. Sec 80TTA does not cover FD or RD interest, and senior citizens are not eligible for 80TTA.

General test for deduction

Allowed only if expense is wholly and exclusively for earning the income, and is not capital or personal

Applies to every claim under section 57 before checking the specific item.

Interest against dividend income

Maximum interest deduction = 20% × dividend income

Applies to interest on money borrowed to invest. No other expense is allowed against dividend income.

Family pension standard deduction

Deduction = lower of 1/3 of the pension and a fixed rupee cap

The cap is ₹15,000 under the old regime and ₹25,000 under the new regime. The ₹25,000 figure applies from FY 2024-25 onward. Check which regime and year the question specifies, and follow the figures given in the question.

Winnings

Deduction = nil

No expense or allowance is allowed against winnings from lotteries, crosswords, races, card games and gambling. Tax applies on the gross amount.

Net income from other sources

Net income = Gross receipt − allowed deductions

Disallowed items are added back, never subtracted.

Quick revision

• Other Sources is the residual head: taxable income not exempt and not under another head.
• Dividend is taxed in the shareholder's hands at the applicable slab rate.
• The only expense allowed against dividend is interest, capped at 20% of the dividend income.
• Interest on bank deposits and securities is taxed here unless it forms part of business income.
• Gift of money from a non-relative is taxable in full if the aggregate in the year exceeds ₹50,000.
• Gifts from relatives, on marriage, and by will or inheritance are not taxed under Section 56(2)(x).
• Immovable property received without consideration is taxed if the stamp duty value exceeds ₹50,000.
• Winnings from lottery, crossword, races, games and betting are taxed at a flat 30%, with no expense deduction.
• Family pension deduction is the lower of one-third of the pension or the fixed rupee limit.
• Personal expenses can never be deducted against Other Sources income.
• Expenses must be incurred wholly and exclusively to earn the income to be allowed.

Common mistakes

• Treating section 56(2) as a closed list. Fix: Remember section 56(1) is a general residuary charge. Any taxable income not under other heads falls here.
• Taxing bank interest as business income for every investor. Fix: Interest is Other Sources unless it arises from a business, such as lending. Check the person's activity.
• Treating dividend as exempt in the shareholder's hands Fix: Remember that from FY 2020-21 dividend is taxable for the shareholder at slab rates.
• Deducting demat charges, brokerage or adviser fees from dividend Fix: Only interest expense is allowed, capped at 20% of the dividend.
• Deducting collection charges from dividend income. Fix: Only interest, within 20% of dividend, is allowed against dividend income. Nothing else.
• Allowing full interest against dividend. Fix: Compute 20% of dividend and take the lower of actual interest and that figure.

Exam tips

• Expect questions asking which head applies. Apply the order of heads and choose Other Sources only after ruling out the rest.
• Watch for options saying section 56(2) lists all items. That is a trap, as the head is residuary.
• Notice the earner's capacity in the question. It decides between business and Other Sources.
• Questions using 'only' or 'always' about interest or dividend are often wrong.
• Exempt income is not taxed under any head, so do not choose Other Sources for it.
• Expect questions that test head of income. Dividend and interest on securities, for an investor, go to Income from Other Sources.
• Questions on the 20% cap usually give a loan interest figure larger than the cap. Compute the cap and take the lower figure.
• For TDS questions, find the year and the threshold, then check whether the payer is a company, bank or other. Rates and thresholds differ.