NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2)
Income from Other Sources for NISM Series X-B
Income from Other Sources is the residual head of income. Anything taxable that does not fall under salary, house property, business or profession, or capital gains lands here. It covers dividends, interest, gifts above the limit, winnings and family pension. To solve questions, check chargeability first, then the special rule, then the allowed deduction.
What this chapter covers
This chapter covers the last of the five heads of income. It works as a catch-all: Section 56 taxes income that is not exempt and not covered by another head. Section 56(2) also names specific receipts that are always taxed here, such as dividends, gifts and certain interest.
The content splits into three groups. The first is regular receipts: dividends and interest on securities. The second is special receipts with their own rules: gifts under Section 56(2)(x), lottery and game winnings, and family pension. The third is deductions: only a narrow set of expenses is allowed against this income, and some are barred outright.
This chapter links to the rest of the paper. The income you compute here is added to the other heads to reach gross total income. It then goes into Chapter VI-A deductions and the tax computation. It also affects client advice: interest, dividend and gift treatment decide the after-tax return on a client's portfolio, which the Level 2 caselets test.
Questions on this chapter are short, rule-based and easy to score if your limits are exact. The Level 2 exam has 150 marks with 25% negative marking, and the 2-mark caselet questions cost 0.5 marks for a wrong answer. Gift thresholds, winnings, dividend deductions and family pension limits are classic places where one wrong number loses marks. The same rules also come back inside tax computation caselets, so mastering this chapter pays off twice.
Income from Other Sources: topics in the order to study them
- 1Income from Other Sources: Scope and ChargeabilityStart here. It teaches the residual nature of the head and the test for what is taxed, which every later topic builds on.
- 2Dividend Income and Interest on SecuritiesThese are the most common receipts, so they give you the basic idea of taxable-on-receipt income and allowed expenses.
- 3Gifts Taxation under Section 56(2)(x)This is the densest topic, with thresholds, types of property and exemptions. Study it once your base is solid.
- 4Other Specific Incomes: Winnings, Family Pension, OthersThese are smaller rules with fixed rates and limits. They are easy to learn after gifts and easy to mix up if learned earlier.
- 5Deductions and Disallowed ExpensesStudy this last. Allowed and barred expenses only make sense once you know each type of income they apply to.
How to prepare Income from Other Sources
Treat this chapter as a table of rules: receipt, taxable or not, rate or limit, deduction allowed. Build that table yourself and then drill it.
- Read the scope topic and write one line: income is taxed here if it is not exempt and not under any other head.
- Make a two-column list for dividends and interest: what is taxed, and which expense, if any, can be deducted. Note that dividend is taxed in the shareholder's hands at slab rates, and the only expense allowed against it is interest, capped at 20% of the dividend.
- For gifts, build a grid with three columns: money, immovable property, other movable property. For each, note the aggregate threshold, the inadequate-consideration test and the value used (stamp duty value or fair market value).
- List the exempt gift cases from memory: gifts from relatives, on marriage, by will or inheritance, and in contemplation of death. Then learn who counts as a relative.
- Memorise winnings: taxed at a flat 30% rate with no deduction for any expense. Then learn the family pension deduction: the lower of one-third of the pension or the fixed rupee limit.
- Solve 15 to 20 numerical MCQs on gifts and deductions. After each, note which rule you missed, then retake only the missed ones after two days.
- Attempt a timed caselet that mixes these items with other heads, and practise stating the Other Sources total before moving on.
Common mistakes in Income from Other Sources
Taxing only the excess over ₹50,000 when a gift crosses the limit.
Fix: Remember it is a threshold, not a slab. Once the aggregate exceeds ₹50,000, the whole amount is taxable.
Treating gifts from any person as exempt because they are 'family'.
Fix: Learn the statutory list of relatives. A friend, cousin or in-law outside the list counts as a non-relative.
Deducting expenses from lottery or game winnings.
Fix: Winnings are taxed on the full amount at the flat rate, with no deduction for any expense.
Deducting more than the allowed interest from dividend income.
Fix: Only interest is allowed, capped at 20% of dividend. Demat charges, advisory fees and similar costs are not deductible against dividend.
Using the wrong value for property gifts.
Fix: Immovable property uses stamp duty value. Movable property such as shares and jewellery uses fair market value.
Guessing the answer in 2-mark caselet questions when unsure.
Fix: On a 2-mark question a wrong answer costs 0.5 marks. Guess only after eliminating at least two options.
Last-day revision: Income from Other Sources
- 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.
Income from Other Sources practice questions
- Which of the following is correct regarding winnings from lottery or crossword puzzles for a resident individual?
- Under the Income-tax Act, 1961, winnings from lotteries, crossword puzzles and card games are taxed under Income from Other Sources at which…
- Under the Income-tax Act as applicable to individuals, which of the following receipts is generally taxed under the head 'Income from Other …
- Mr. Rao receives a gift of Rs 80,000 in cash from a friend who is not a relative, and later in the same year receives another gift of Rs 30,…
- Ms. Anita Desai, a resident individual, received dividends of Rs 24,000 from an Indian company and incurred Rs 3,000 as interest on a loan t…
- Meera, a senior citizen, earns interest of Rs 62,000 on bank fixed deposits during the year. Under the old regime, she also has Rs 9,000 of …
- Ms. Kavita Rao, a resident individual, received Rs 1,20,000 as dividend from an Indian company during the year. She is in the 30% slab (igno…
- Caselet: Mrs. Kavita Rao, aged 62, inherited a plot from her late father and later received from her son, as a gift, shares of an unlisted c…
Income from Other Sources in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Income from Other Sources: frequently asked questions
What is taxed under Income from Other Sources?
It is the residual head. Income that is taxable but does not fall under salary, house property, business or profession, or capital gains is taxed here. Specific items such as dividends, interest, gifts and winnings are named in Section 56.
Is dividend income taxable for shareholders?
Yes. Dividend is taxed in the shareholder's hands under this head at the applicable rate. The only expense you can claim against it is interest, capped at 20% of the dividend.
When is a gift taxable under Section 56(2)(x)?
A gift is taxable when it comes from a non-relative and exceeds the threshold. For money, the aggregate received in the year must exceed ₹50,000, and then the whole amount is taxed. Gifts from relatives, on marriage, or by will or inheritance are exempt.
Can I deduct expenses against winnings from lottery or games?
No. Winnings are taxed at a flat 30% and no expense or allowance can be deducted from them. This is a frequent MCQ trap.
How should I split my time within this chapter?
Spend the most time on gifts, since it has the most thresholds and exemptions. Give dividends, interest and deductions steady practice, and revise winnings and family pension as short fixed-rule items.