Direct Tax Laws & International Taxation · Income from Other Sources

Issue of Shares at Premium and Other Specific Receipts under Income from Other Sources

Updated 5 October 2026 · Fact-checked

Excess share premium was once taxed as income of a closely held company, but the charge is omitted for issues from 1 April 2024. Winnings are taxed at a flat 30% with no deductions. Keyman insurance proceeds, with bonus, are business income. Termination compensation is usually salary. Identify the receipt, its head and its rate.

Understand Issue of Shares at Premium and Other Specific Receipts

Income from Other Sources is the residual head. A receipt lands here only if it is income and no other head claims it. Some receipts are named specifically in the Act, so they are taxed even if they look like capital receipts or windfalls.

Excess share premium (angel tax). A closely held company (one that is not widely held) sometimes issued shares to a resident at a price above fair market value (FMV). The excess of the price received over FMV was treated as income of the company under this head. The idea was to stop money of doubtful origin from coming in as share capital. The Finance (No. 2) Act, 2024 omitted this charge with effect from 1 April 2025, and the omission applies to issues from financial year 2024-25 onwards. So no excess-premium tax arises on shares issued on or after 1 April 2024. The charge survives only for issues made in earlier years. Check whether a question is framed under the earlier rule. If it is, apply the rule to the earlier issue.

Winnings. Winnings from lotteries, crossword puzzles, races (including horse races), card games and other games, gambling or betting are taxed under this head. They attract a special flat rate of 30%, plus cess. Surcharge is levied at the normal rates applicable to the income level, and the 15% cap on surcharge available for some other special-rate incomes does not apply to winnings. No expenditure is allowed against them, and no deduction under Chapter VI-A (the deductions for savings and similar items) is allowed. For a resident individual, unused basic exemption cannot be adjusted against winnings, and the rebate for resident individuals with low income cannot be allowed against the tax on winnings.

Keyman insurance. A keyman policy is taken by a business on the life of a key person, such as a director or an important employee. The sum received under it, including any bonus, is taxable as business income of the person who receives it. This includes a person to whom the policy has been assigned, such as the keyman, who is taxed on it as business income when he receives it. It is not taxed under Other Sources. The usual exemption for life insurance maturity proceeds does not apply. The premium paid is deductible as a business expense.

Termination compensation. Compensation received from an employer when employment ends, or when its terms are changed, is generally taxed as profits in lieu of salary, i.e. under the head Salaries. Only specified exemptions, such as for a qualifying voluntary retirement scheme or retrenchment, reduce it. Compensation for ending a business agency is a business receipt. Always decide the head before you decide the rate.

Key rules to remember

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.

How to solve Issue of Shares at Premium and Other Specific Receipts questions

Use the same sequence for every question on specific receipts. It stops you from picking the wrong head or rate.

1Read the facts and list each receipt separately with its amount.
2Decide the nature of each receipt: share issue, winnings, insurance proceeds or compensation.
3Fix the head of income. Termination compensation goes to Salaries. Keyman proceeds go to Business income. Winnings go to Other Sources.
4For share premium, check the date of issue and whether the question is framed under the earlier rule. If it is, check that the company is closely held, the investor is a resident, and the price is above FMV. Take the excess over FMV. For issues on or after 1 April 2024, no excess-premium tax arises.
5For winnings, take the gross amount. Allow no expenses or Chapter VI-A deduction. Apply 30% separately and add surcharge at the normal applicable rate (no 15% cap) and cess. Allow no rebate for low income against this tax.
6Apply any specific exemption only if its conditions are met.
7Add the taxable amounts to the correct heads, then compute total income and tax, keeping special-rate income apart from slab-rate income.
8State the conclusion in provision, facts and conclusion form.

Quickest way: Receipt, head, rate in three lines

When to use it: Use in the exam when a case lists several unusual receipts and you have limited time.

Write each receipt in a column with its head: Salary, Business or Other Sources.
Mark winnings as 30% flat on the gross amount, and keyman and termination receipts as fully taxable unless a named exemption applies.
For share premium, write the excess over FMV only if the earlier rule is intended. Otherwise note that no tax arises on excess premium.

Common mistakes in Issue of Shares at Premium and Other Specific Receipts

Applying the excess share premium tax to an issue made on or after 1 April 2024.
Older notes and many past papers still test the provision.
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.
Students treat winnings like business income.
Fix: No expenditure is allowed. Tax the gross amount at 30%.
Using the basic exemption limit to reduce tax on winnings.
Students add winnings to other income and apply slabs.
Fix: Compute tax on winnings separately at 30%. For a resident individual, do not adjust unused basic exemption against it, and allow no Chapter VI-A deduction.
Treating keyman insurance proceeds as exempt maturity proceeds.
Students recall the exemption for ordinary life policies.
Fix: The exemption does not cover keyman policies. Tax the whole sum with the bonus as business income.
Showing termination compensation under Other Sources.
The word 'compensation' suggests a windfall.
Fix: Compensation for loss of employment is profits in lieu of salary. Put it under Salaries.
Taking the excess over face value instead of over FMV in an earlier-rule question.
Premium is confused with excess over face value.
Fix: The comparison is between the consideration received and the FMV of the shares.

Worked examples

Example 1

Mr. Rao, a resident individual, wins ₹5,00,000 in a lottery. He had spent ₹40,000 on tickets. He also earns bank interest of ₹20,000. Compute the tax on the winnings, ignoring surcharge and cess, and state how the interest is taxed.

Show the solution

Winnings are taxed at a flat 30% on the gross amount. This is a special rate, not a slab rate.
No deduction is allowed for the ₹40,000 ticket cost, so the taxable winnings are ₹5,00,000.
Tax on winnings = 30% × ₹5,00,000 = ₹1,50,000.
Unused basic exemption cannot be adjusted against the winnings, and no rebate for low income is allowed against the tax on them.
Bank interest of ₹20,000 is also Other Sources income, but it is taxed separately at normal slab rates.

Answer: Tax on the winnings is ₹1,50,000 before surcharge and cess, on the gross ₹5,00,000. The ticket cost is not deductible and no rebate reduces this tax. The interest of ₹20,000 is taxed separately at slab rates.

Example 2

A closely held company issued 10,000 equity shares of face value ₹10 each at ₹150 per share to a resident investor. The FMV of a share is ₹100. Assuming the question is set under the earlier excess-premium rule, compute the taxable excess. Separately, state how a ₹3,00,000 compensation paid to an employee on termination of employment is taxed.

Show the solution

Consideration received = 10,000 × ₹150 = ₹15,00,000.
FMV of the shares = 10,000 × ₹100 = ₹10,00,000.
Consideration exceeds FMV, so the earlier rule applies to a closely held company issuing to a resident.
Excess = ₹15,00,000 − ₹10,00,000 = ₹5,00,000. This is income of the company under Other Sources.
Face value (₹1,00,000) does not enter the excess computation.
For the employee: termination compensation is profits in lieu of salary and is taxed under Salaries unless a specified exemption applies.

Answer: Under the earlier rule, ₹5,00,000 is taxable in the company's hands as income from other sources. This rule is omitted for issues from 1 April 2024, so an issue on or after that date attracts no such tax. The ₹3,00,000 termination compensation is taxable under Salaries, subject to any specified exemption.

Exam tips

Read the question for the date of issue. A share premium problem may be framed under the earlier rule or may test that it no longer applies.
Write the head of income for each receipt first. Examiners award marks for the correct head.
In winnings problems, state clearly that no expenses or Chapter VI-A deductions are allowed, the rate is 30% on the gross amount, and no rebate for low income is available against this tax. Do not apply the 15% surcharge cap to winnings.
For case-scenario MCQs, look for traps such as ticket costs, bonus on a keyman policy and the nature of compensation.
Keep special-rate income separate when you compute total income and tax.

Practice questions from Income from Other Sources

Issue of Shares at Premium and Other Specific Receipts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Issue of Shares at Premium and Other Specific Receipts: frequently asked questions

Is angel tax still applicable for tax year 2026-27?

No. The Finance (No. 2) Act, 2024 omitted the tax on excess share premium with effect from 1 April 2025, and the omission applies to issues from financial year 2024-25 onwards. Shares issued on or after 1 April 2024 are not taxed on excess premium. Check whether a question is framed under the earlier rule for an earlier issue.

Can I deduct expenses from lottery winnings?

No. Winnings are taxed on the gross amount at a flat 30% and no expenditure, loss or Chapter VI-A deduction can be set against them. Cess is added, and surcharge is levied at the normal rates for the income level, without the 15% cap. The rebate for low income is also not allowed against this tax.

Is keyman insurance money taxable?

Yes. The sum received, including any bonus, is taxable as business income of the person who receives it, including a person to whom the policy was assigned. The exemption for life insurance maturity proceeds does not apply. It is not taxed under Other Sources. The premium paid is deductible as a business expense.

Under which head is termination compensation taxed?

Compensation received on termination of employment or change in its terms is generally profits in lieu of salary and is taxed under Salaries. Only specified exemptions, such as for a qualifying voluntary retirement, reduce it.