INDIAN INCOME TAX 6 -- INCOME FROM OTHER SOURCES

Income from other sources

This is a residual head, under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be always taxed under this head.

1.     Income by way of Dividends.

2.     Income from horse races/lotteries.

3.     Employees' contribution towards staff welfare scheme.

4.     Interest on securities (debentures, Government securities and bonds).

5.     Any amount received from keyman insurance policy as donation.

6.     Gifts (subject to certain conditions and exemptions).

7.     Interest on compensation/enhanced compensation.

Agricultural income

Agricultura income is exempt from tax by virtue of section 10(1). Section 2(1A) defines agricultural income as :-

• Any rent or revenue derived from land, which is situated in India and is used for agricultural purposes.
• Any income derived from such land by agricultural operations including processing of agricultural produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce.
• Income attributable to a farm house (subject to some conditions).
• Income derived from saplings or seedlings grown in a nursery.

Income partly agricultural and partly business

Income in respect of the below mentioned activities is initially computed as if it is business income and after considering permissible deductions. Thereafter, 40,35 or 25 percent of the income as the case may be, is treated as business income, and the rest is treated as agricultural income.

Income a	Business income	Agricultural income
Growing & manufacturing tea in India	40%	60%
Sale of latex or cenex or latex based crepes or brown crepes manufactured from field latex or coalgum obtained from rubber plants grown by a seller in India	35%	65%
Sale of coffee grown & cured by seller in India	25%	75%
Sale of coffee grown, cured, roasted & grounded by seller in India	40%	60%

a For apportionment of a composite business-cum-agricultural income, other than the above mentioned, the market value of any agricultural produce, raised by the assessee or received by him as rent-in-kind and utilized as raw material in his business, should be deducted. No further deduction is permissible in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.

Scheme of partial integration of non-agricultural income with agricultural income

If the assessee is an individual, HUF, AOP, BOI or an artificial judicial person; and the net agricultural income exceeds Rs. 5000 per annum; and the non-agricultural income exceeds the amount of basic exemption limit, then the tax calculation shall be:-

1.     Compute tax on aggregate amount of non-agricultural and agricultural income.

2.     Compute tax on aggregate amount of net agricultural income and basic exemption limit available to the assessee.

3.     Calculate the difference from above mentioned two amounts and add education cess and secondary and higher secondary education cess.

Disclaimer

In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of Income tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the Income tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.

It may be noted that nothing contained in this note should be regarded as our opinion.  Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views/ interpretations.