Ch#11income from other source

Question 1

Define Income from other source?

Answer 1

Income of every kind received by a person in a tax year,if it is not included in any other head(other than income exempt from tax),shall be chargeable to tax under the head “income from other sources”

Question 2

Criteria for classifying IFOS

Answer 2

Following is the criteria for classifying an income under the head IFOS
•It must be income as per definition of income
•It is not chargeable under any other head.
•It is not exempt from tax
•It does not fall under final tax regime.

Question 3

What is included in IFOS?

Answer 3

a.Dividend
If dividend received is foreign source income it is chargeable under the head”IFOS”
b.royalty
c.profit on debt ;(interest income)
cc.additional payment on delayed refund under any
tax law
d.ground rent
e.rent from sub-lease of land or a building
f.income from the lease of any building together with plant or machinery;
fa.income from provision of amenities(facilities), utilities or any other services connected with renting of building
g.any annuity or pension;
h.any prize bond ,or winning from a raffle ,lottery prize on winning a quiz,prize offered by companies for promotion of sale or cross-word puzzle;
i.any amount received for the provision,use or exploitation of property, including the grant of a right to explore natural resources;
j.the fair market value of benefits received for provision,use or exploitation of property;
k.any amount received by a person as consideration for vacating the possession of a building (or part of thereof),reduced by an amount paid by the person to acquire possession of building (or part of thereof)shall be chargeable under the head IFOS in the tax year in which it was received and the following 9 tax year in equal proportion;[also 39(2)]
l.any amount received from approved income payment plan or annuity plan under voluntary pension system rule,2005;and
la.any amount or fair market value of any property received without consideration or received as gift.However ,if gift is received from relatives,it will not be included in IFOS

Question 4

Sub-Sec(3) Treatment Amount received as loan ;advance ; deposit for insurance of shares or gift

Answer 4

Any amount received as;
•loan ;
•advance ;
• deposit for insurance of shares or
•gift
By a person in a tax year from another person (not being a banking company or financial institution) otherwise than by:
•a crossed cheque drawn on a bank or
•a banking channel from a person holding a NTN
shall be treated as “IFOS” for the year in which it was received.

Question 5

Person holding NTN?

Answer 5

He should make the payment to anyone through following modes:

• Cross cheque,or:
• Any other banking channel.

Question 6

Person not holding NTN?

Answer 6

He should make the payment to anyone through following mode:

-cross cheque

Question 7

Sub-Sec (4) Treatment for an advance for the sale of goods or supply of services.?

Answer 7

Sub-Sec (3) shall not apply to an advance for sale of goods or supply of services.
Contracts are of 3 types:-
1.contract for sale of goods (sale of AC, furniture etc)
2.contract for rendering services (law or audit services)
3.contract for sale of goods and rendering services (i.e,seller will create map and will also provide construction 🚧 material)
First 2 contracts:
In first two contracts if the seller is receiving advance the payment can be made by buyer through any mode of payment (i.e.,cash)
Third contract:
If the contract relates to sale of goods and rendering services the buyer should make payment through modes mentioned in Sub-sec(3) otherwise it will be treated as IFOS in the hands of seller

Question 8

Sub-Sec(4A&4B) Treatment of profit on investment/savings

Answer 8

(4A)Where-
(a) any interest on investment in National Savings Deposit Certificates (including Defence Savings Certificates) is paid to person in arrears;and
(b)as a result the person is charged at higher rate of tax than was applicable if the profit was paid was paid to the person in the tax year to which it relates ,
The person may,by writing to the commissioner,elect for the profit to be taxed at the rate that was applicable if the interest was paid to the person in the tax year to which it relates.
(4B) An election as above shall be made by the due date for furnishing the person’s return for the tax year in which it was received.the commissioner may allow an extension.

Question 9

Is IFOS is chargeable under any other head of income or FTR?

Answer 9

Sub-Sec (5) This section IFOS shall not apply to any income that is chargeable under any other head of income or falls under FTR.

Question 10

Admissible deductions in computing income under the head IFOS (Sec.40)

Answer 10

Admissible deductions;

1. In computing the income under the head IFOS, a deduction shall be allowed for any expense paid by the person if the expenditure is paid in deriving income. However, no deduction will be allowed for any *expenditure of a capital nature.
   * (Expenditure is of a capital nature if it has a normal useful life of more than one year)
2. A person receiving income from a lease of a building together with plant and machinery shall be allowed
   (a) a deduction for the depreciation of any plant, machinery, or building used; and
   (b) An initial allowance for any plant and machinery used

Question 11

In-admissible deductions in computing income under the head IFOS (Sec.40)

Answer 11

In-admissible deductions:
(4)
Any expense which is allowed as deduction under another head will again not be allowed under this head.
(5)
The expenses which are not allowed as deductions under the head income from the business will also not be allowed as deductions under the head IFOS.
Example for understanding source of income
• revenue expenditure
( day to day expenses is that repair, salary etc)
IFB allowed
IFOS allowed
• capital expenditure
(i.e., purchase of fixed asset )
IFB depreciation allowed
IFOS depreciation not allowed

Question 12

Treatment of tax on profit on debt (interest income)[Sec.7B]?

Answer 12

1. A tax shall be imposed at 15% on every individual and AOP who receive profit on debt from a prescribed person(e.g., from Bank government or national saving schemes )
2. the tax shall be computed by applying the rate of tax to the gross amount of profit on debt.
3. This section shell not apply to a profit on debt that: (a) is exempt from tax (b)exceeds Rupees 5 million

With holding agent shall deduct tax on gross amount at the rate of 15%

If profit on debt exceeds Rupees 5 million for (individual or AOP) it would be taxable under NTR under the head income from other source
If interest is earned through loan Agreement then is taxable under NTR in case of all persons (individuals,AOP, Company)under the head IFOS
Profit on debt on behbood saving certificate/pensioners benefits account is taxable under NTR with maximum tax rate @10%