Chapter 7 Lesson A - Income from Other Sources and Exemptions & Deductions

Introduction of the Host
Mrs.Geetha Dasaraty is a commerce graduate with a Masters in Business Administration specialising in finance. Her stint with a Coimbatore based company and later with a consulting firm in Chennai has provided her with a decade of experience in project finance and appraisals, accounting and tax laws. She is a freelance writer and money matters are her forte. She is currently pursuing her final course in Company Secretaryship and is doing a course on Vaishnavism. She has a passion for literature and Carnatic music. She is also a violinist.

About the Class
We bring you an online class titled 'Elementary Finance'. This will have 12 lessons - one a month. Each lesson is further subdivided into 4 chapters. And we will give you one new chapter every week.

Chapter 7 Lesson A - Income from Other Sources and Exemptions & Deductions
Income from other sources is the residual head of charge of income. Where an income does not fit in any other head of income, it will be taxed under this head.

Incomes chargeable under this head

• Winnings from lotteries, crossword puzzles, horse races and card games or other income from gambling or betting will be taxed under this head at a flat rate of 40 %. Any income of a casual or non-recurring nature is exempt up to Rs. 5000 in aggregate.
• Dividends: Any dividend declared to shareholders is charged under this head.
• Interest on securities: Where books are maintained on cash basis, the interest will be taxable on receipt basis, and where they are maintained under mercantile system, interest is chargeable on accrual basis.
• Income from plant, machinery or furniture let out on hire is taxable under this head if it is not taxed under any other head.
• Interest accrued on Kisan Vikas Patra, on Social Security Certificates, on NSC's and Indira Vikas Patras will be taxed under this head.

Deductions:
The following deductions are available under this head:

• Any remuneration or commission for realising dividend or interest.
• In the case of family pension, Rs.15,000 or 33.33% of such income whichever is lower.
• In the case of income from plant and machinery, any repairs, and depreciation are allowed as a deduction.
• Any other expenses incurred solely for this purpose.

Amounts not deductible:

• Personal expenses
• Interest payable outside India where tax has not been deducted at source.
• Salary payable outside India where tax has not been deducted at source.
• Amounts paid in connection with wealth tax.
• Expenditure on behalf of royalty and technical fees received by a foreign company is not deductible.
• No expenses are allowed as deduction in relation to winnings from lotteries or other games.

Exemptions and Deductions
A few Tax-free incomes

• Agricultural incomes
• Payments received from family income by a member of a HUF.
• Share of profit from firm.
• Receipt of casual and non-recurring income up to Rs.5000.
• Interest received by a non-resident from certain specified securities.
• Interest received by non-residents on NRE accounts.
• Interest from notified Government securities in certain cases.
• Leave travel concession subject to rules.
• Tax paid by employer of non-resident Indian technician.
• Value of concessional passage received by a foreign national employee from his employer.

Deductions from total income

• Deduction for investments made in Equity Linked Insurance Schemes.
• Deductions for contributions made to pension fund up to a maximum of Rs.10,000.
• Deductions on medical insurance premia subject to the satisfaction of a few conditions.
• Deductions in respect of maintenance including medical treatment of handicapped dependents.
• Deductions on medical treatment subject to a maximum of Rs. 40,000.
• Deductions on education loans for higher studies subject to a maximum of Rs. 40,000.
• Deductions on donations given to certain funds and charitable institutions.
• Deductions on rent paid.
• Certain deductions are available on the interest of certain securities and dividends.
• Deductions in respect of remuneration from foreign sources in the case of professors and teachers.
• Deductions are also allowed on professional income from foreign sources.
• Deductions are allowed for remuneration received for services rendered outside India.
• Deductions are allowed in the case of totally blind or physically handicapped resident persons.

Deductions from tax liability
A taxpayer is entitled to certain tax rebates.

• Tax rebate is available under Sec. 88 on life insurance premium, contribution to provident fund, other superannuation funds etc. up to 20 % of the gross qualifying amount or Rs.16,000.
• Further deductions are also available on the investment in respect of NSC 6th or 8th issue.
• Additional tax rebate is available for resident individuals who have attained the age of 65 years subject to a maximum of Rs.15,000.
• Tax rebate is also given in the case of women below 65 years of age subject to a maximum of Rs.5000.

Return of Income
Every person, whose total income exceeds the maximum amount not chargeable to tax, is required to file a return voluntarily.
Obligatory filing of Return
A person has to furnish his return if he fulfills any of the following conditions:

• Ownership or lease of a motor vehicle.
• Ownership of any immovable property exceeding 1000 sq. ft of area.
• Incurred expenditure on foreign travel other than certain places specified under the Act.
• Subscription of a telephone.
• Holder of a credit card other than an 'add-on' card.
• Member of a club with entrance fees more than Rs.25,000.

PAN Card
The PAN Card is the Permanent Account Number. The following persons should apply for the PAN card in the prescribed form.

• Every person whose total income exceeds Rs.50,000.
• Any person carrying on business or profession whose total sales or gross receipts exceeds Rs.5,00,000.
• Any person as the Central Government may so specify.

Advance Tax
An individual has to pay advance tax if in his estimate, the tax payable for the financial year will be more than Rs.5,000.
It has to be paid in three instalments for asseessees other than companies.
Due dates for advance tax are:

• Up to 30 %of advance tax on or before 15th September of the previous year.
• 60% of the advance tax on or before 15th December
• 100% on or before 15th March.

Refund
Where a person satisfies the assessing officer that he has paid tax in excess of what has to be actually paid, he is liable to a refund on such excess amount paid. The claim for refund has to be done in the specified form and has to be claimed within a year from the last day of the assessment year.

Questions on Chapter 6 Lesson D
1. What are the expenses allowed as deductions from business or professional income?
2. How are capital gains computed?