Income from other sources, such as interest or dividends, is taxed under the head “Income from Other Sources” in the Indian Income Tax Act. Here’s how these types of income are typically taxed:
1. Interest Income
Types of Interest Income:
- Bank Fixed Deposits (FDs): Interest earned from bank FDs.
- Savings Accounts: Interest earned from savings accounts.
- Post Office Deposits: Interest from various post office savings schemes.
- Bonds and Debentures: Interest earned from bonds, debentures, and other securities.
Tax Treatment:
- Taxable: Interest income is fully taxable as part of your total income.
- Tax Deducted at Source (TDS): Banks and financial institutions often deduct TDS on interest payments exceeding ₹40,000 (₹50,000 for senior citizens) in a financial year. If TDS is deducted, you can claim credit for it while filing your return.
- Exemptions:
- Savings Account Interest: Up to ₹10,000 per financial year is exempt under Section 80TTA. For senior citizens, this exemption limit is ₹50,000 under Section 80TTB.
- Interest on certain government savings schemes: For example, the interest on Sukanya Samriddhi Account is tax-free.
2. Dividend Income
Types of Dividend Income:
- Dividends from Shares: Earnings distributed by companies to their shareholders.
- Dividends from Mutual Funds: Earnings distributed by mutual funds to their investors.
Tax Treatment:
- Taxable: Dividends received from Indian companies and mutual funds are taxable. They are added to your total income and taxed according to the applicable income tax slabs.
- Tax Deducted at Source (TDS): Dividends from Indian companies are subject to TDS at 10% if the total dividend income exceeds ₹5,000 in a financial year. For mutual funds, TDS is deducted at 10% if the dividend exceeds ₹5,000.
- Exemptions:
- Dividend Income up to ₹10 lakh: For individuals, Hindu Undivided Families (HUFs), and firms, the first ₹10 lakh of dividend income is tax-free under Section 10(34). Income exceeding this limit is taxable as per the individual’s tax slab.
3. Other Types of Income from Other Sources
- Gifts: Certain gifts, such as those received from relatives or on occasions like marriage, are exempt. Gifts exceeding ₹50,000 from non-relatives are taxable.
- Winnings from Lottery, Gambling, and Betting: Taxed at a flat rate of 30% plus applicable cess. This income does not qualify for deductions.
- Royalty and Technical Fees: Income from royalties, technical fees, and other similar sources is taxable as per the applicable tax slab.
4. Special Considerations
- Tax Computation: Total income from other sources is added to your total taxable income and taxed according to your applicable tax slab.
- Advance Tax: If the total tax liability exceeds ₹10,000, you are required to pay advance tax in installments during the financial year.
It’s essential to maintain accurate records of all interest and dividend income and report them correctly in your tax return. For specific situations or complex cases, consulting with a tax professional can provide tailored advice and ensure compliance with current tax regulations.
