This is a presentation made by me to a batch of Indian tax officers at their training academy on 28th May 2012. It is on the head of income called "Income from Other Sources"

1. INCOME FROM OTHER SOURCES
(IFOS)
CA Ameet Patel
28th May, 2012

2. Residuary Nature
It must be remembered that IFOS is only a
residuary head of income.
An income which is not taxable under any other
head and which is not tax free will fall under this
head

3. How to check if an income can be taxed
under the head IFOS?
1. Is it exempt?
2. Is it taxable under any specific head of income?
3. Is it a capital receipt
4. If the answer to all the questions is “NO” then,
it is taxable under the head IFOS

4. Income from Other Sources –
which sections apply?
• Section 56 lists down what can be taxed under
the head of IFOS
• Section 57 lists down the deductions available
under the head IFOS
• Section 58 lays down the amounts NOT
deductible
• Section 59 lays down that Section 41(1) would
apply to IFOS also

5. Section 56
• Dividends other than dividend exempt u/s.
10(34)/ 10(35) – for e.g. dividend from foreign
companies/co-op. banks/co-op societies etc. &
also deemed dividend;
• Winnings from lotteries, crossword puzzles,
races, horse races, card games, other games of
any sort, gambling or betting;
• income by way of interest on securities, if the
income is not chargeable to income-tax under the
head “Profits and gains of business or profession”

6. Section 56
• income from machinery, plant or furniture
belonging to the assessee and let on hire (if its
not chargeable to income-tax under the head
“Profits and gains of business or profession”)
• where an assessee lets on hire machinery, plant
or furniture belonging to him and also buildings,
and the letting of the buildings is inseparable
from the letting of the said machinery, plant or
furniture, the income from such letting (if it is not
chargeable to income-tax under the head “Profits
and gains of business or profession”)

7. Section 56
• income referred to in sub-clause (xi) of clause
(24) of section 2 (sum received under a
Keyman Insurance Policy including bonus) if
such income is not chargeable to income-tax
under the head “Profits and gains of business
or profession” or under the head “Salaries”

8. Section 56 - Gifts
• where an individual or a Hindu undivided family receives from any person or persons on or
after 1st October, 2009,—
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty
thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property, without consideration, the stamp duty value of which
exceeds fifty thousand rupees, the stamp duty value of such property;
(c) any property, other than immovable property,—
(i) without consideration, the aggregate fair market value of which exceeds
fifty thousand rupees, the whole of the aggregate fair market value of such
property;
(ii) for a consideration which is less than the aggregate fair market value of the
property by an amount exceeding fifty thousand rupees, the aggregate fair
market value of such property as exceeds such consideration:
Provided that where the stamp duty value of immovable property as referred to in sub-
clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section
50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and
the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply
in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they
apply for valuation of capital asset under those sections

9. Section 56 - Gifts
• Provided further that this clause shall not apply to any sum of
money or any property received—
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case
may be; or
(e) from any local authority as defined in the Explanation to clause
(20) of section 10; or
(f) from any fund or foundation or university or other
educational institution or hospital or other medical institution
or any trust or institution referred to in clause (23C) of section
10; or
(g) from any trust or institution registered under section
12AA.

10. Section 56 - Gifts
• Explanation — For the purposes of this clause, “relative”
means —
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the
individual;
(vii) spouse of the person referred to in clauses (ii) to (vi)
In case of HUF, relative would mean any member of the HUF
(retrospective amendment w.e.f. 1-10-2009)

11. Exempt gifts from relatives –
1st level
Father
Spouse Mother
Donee
Children Sister
Brother

12. Exempt gifts from relatives –
2nd level
Spouse’s
brother
Spouse’s
Spouse’s
brother’s Donee sister
wife
Spouse’s
sister’s
husband

13. Exempt gifts from relatives –
3rd level
Father’s
sister
Mother’s Father’s
brother Donee brother
Mother’s
sister

14. Exempt gifts from relatives –
4th level
Lineal
Ascendant
Lineal
Lineal
Descendant Donee Descendant
of spouse
Lineal
Ascendant
of spouse

15. Exempt gifts from relatives –
5th level
Brother’s
Wife
Grand
Sister’s
Daughter-
Husband
in-law
Father’s /
Grand Son- Mother’s
in-law Donee sister’s
Husband
Father’s /
Mother’s
Son-in-law
Brother’s
Wife
Daughter-
in-law

16. Anomaly in definition of Relative
• If a nephew receives a gift from his uncle, he
does not have a problem because uncle is a
“relative”
• But if same uncle receives a gift from that
nephew then it is taxable because nephew is
not a “relative”

17. Section 56 - Gifts
For the purposes of this clause
• “property” means the following capital asset of the assessee,
namely:—
(i) immovable property being land or building or both;
(ii) shares and securities;
(iii) jewellery;
(iv) archaeological collections;
(v) drawings;
(vi) paintings;
(vii) sculptures;
(viii) any work of art; or
(ix) bullion

18. Section 56 - Gifts
• For the purposes of this clause
“fair market value” of a property, other than
an immovable property, means the value
determined in accordance with the method as
may be prescribed see Rule 11U and 11UA

19. Section 56 - Gifts
• In respect of gifts to spouse, please
remember the provisions of section 64 for
clubbing

20. Section 56
• where a firm or a company not being a company in which the
public are substantially interested, receives, in any previous
year, from any person or persons, on or after 1st June, 2010,
any property, being shares of a company not being a
company in which the public are substantially interested,—
(i) without consideration, the aggregate fair market value of
which exceeds Rs. 50,000, the whole of the aggregate fair
market value of such property;
(ii) for a consideration which is less than the aggregate fair
market value of the property by an amount exceeding Rs.
50,000, the aggregate fair market value of such property as
exceeds such consideration :

21. Section 56
Provided that this clause shall not apply to any such
property received by way of a transaction not regarded as
transfer under clause (via) or clause (vic) or clause (vicb) or
clause (vid) or clause (vii) of section 47 (amalgamation,
demerger)
Explanation.—For the purposes of this clause, “fair market
value” of a property, being shares of a company not being a
company in which the public are substantially interested,
shall have the meaning assigned to it in the Explanation to
clause (vii) (the one dealing with gifts received by
individuals)

22. Section 56
• income by way of interest received on
compensation or on enhanced compensation
referred to in clause (b) of section 145A
(interest on compensation / enhanced
compensation)

23. Gifts
• Traditionally, gifts have been a major source of
untaxed money in India
• Now, it has become difficult to use this
method for converting black money into white
• But it can still be used
• So, it is important to understand how to
unearth a fictitious gift

24. Gifts from relatives
• What questions to ask?
– What is the relationship between donor and
donee
– Is the relationship covered in the definition of
“relatives”
– Is there a history of gifts between the same donor
and donee
– Are there cross gifts between same donor and
donee or between their relatives?

25. Gifts from relatives
• What questions to ask?
– The basic facts can still be inquired into :
 Identity of the donor
 Capacity of the donor
 Genuineness of the gift
 Source of the gift
– You cannot question source of source

26. Gifts from relatives
• General inquiries to be made:
– PAN of the donor
– Confirmation from the donor
– Bank statement/pass book of the donor
– Statement of income of the donor
– Check with the AO of the donor if you have doubts
– Gift deed – not necessary in all cases – stamp duty
issue

27. Gifts - summary
Gift from
Relative Non Relative
Genuine Non genuine Genuine Non genuine
Taxable if it exceeds
Not Taxable
Taxable irrespective limit unless it falls in Taxable irrespective
irrespective of
of amount any of the of amount
amount
exemptions

28. Section 57
• This section allows a tax payer to claim
deductions from IFOS

29. Deductions from
Dividend/Interest on securities
• Any reasonable sum paid by way of
commission or remuneration to a banker
or any other person for the purpose of
realising such dividend or interest on
behalf of the assessee

30. Deductions from Rental Income
• Current Repairs
• Rent, Rates and Taxes
• Insurance Premium
• Depreciation

31. Deductions from Family Pension
Income
• Standard deduction of 331/3% of such
income or Rs. 15,000 whichever is less
• Here, family pension means a regular
monthly amount payable by the employer
to the legal heir of a deceased employee

32. Deductions from Interest on
Compensation
• Standard deduction of 50% of such
income
• No other deduction would be available
from this income

33. Deductions from Lottery winnings,
races, gambling etc.
• As per Section 58, no deduction would be
allowed from income by way of any winnings
from lotteries, crossword puzzles, races
including horse races, card games and other
games of any sort or from gambling or betting
of any form or nature, whatsoever

34. Other Deductions from IFOS
• Any other revenue expenditure incurred
wholly and exclusively for the purpose of
making or earning such income

35. Section 58 –
Amounts not deductible
• Personal Expenses
• Interest payable outside India and from which
TDS is not paid or deducted
• Salary payable outside India and from which
TDS is not deducted or paid
• Wealth-tax
• Section 40A would also apply – mainly –
40A(2) and 40A(3)

36. Unexplained money
• Refer to sections 68, 69, 69A, 69B, 69C, 69D –
unexplained cash credits, money, investments,
expenditure etc – could be taxed under the
head IFOS

37. Set off & carry forward of losses
• Section 70 allows loss from any source under
the head IFOS to be set off against income
under from any other source under the same
head
• Section 71 allows loss under the head IFOS to
be set off against income under any other
head
• Loss under the head IFOS is not allowed to be
carried forward except in specific case
mentioned in section 74A

38. Assessment Related Issues
• How to find out if assessee has any IFOS
• Bank Summary/Books of Account/P&L
• Method of accounting – cash v/s. accrual – the
main reason for mismatch
• Matching of TDS with AIR
• Interest on NSCs
• Interest on Bank FDs (sweep accounts)

39. Thank you
patelameet@hotmail.com