In the income tax return (ITR) forms, incomes to be declared are broadly categorized under five heads: salary, business, house property, capital gains or losses and income from other sources (IFOS). Any residual income that is taxable but cannot be declared under the first four categories is to be declared under IFOS. Some incomes under the IFOS head, such as savings account interest, family pension, among others, enjoy tax benefits. After claiming tax exemptions and deductions, incomes under IFOS head are added to the total income of the taxpayer and taxed as per slab rates.
Mint gives you a rundown of what incomes constitute IFOS and the tax deduction rules applicable to them.
Interest income up to ₹10,000 in a financial year from bank or post office savings accounts is exempt from tax. This exemption limit is applicable to interest from all savings accounts combined and not individual accounts. So, if you have accounts in different banks and post office, you must add the interest income earned from all the accounts to calculate your tax liability. If the total interest falls below the threshold, you should declare it under exempt income, else it should be declared under IFOS head.
Interest earned from fixed deposits and recurring deposits is fully taxable.
Dividend: Rules on taxability of dividend income have changed from the current assessment year. Earlier, dividend income up to ₹10 lakh was exempt from tax as the company paying out the dividend deducted dividend distribution tax (DDT). Dividend above ₹10 lakh had to be declared by the taxpayer and was taxed at 10%.
From this year, the liability of declaring dividend and paying tax on it has moved to the taxpayer completely. In view of this, the threshold of ₹10 lakh is removed and each taxpayer has to declare dividend income under the IFOS head and pay tax on it as per their slab rate.
Gifts: Gifts received in a year whose aggregate value exceeds ₹50,000 are considered as other income and declared under IFOS as per Section 56(2). It should be noted that if the aggregate value of gifts exceeds the exemption limit of ₹50,000, you have to pay tax on the entire amount. Gifts received through inheritance, on the occasion of a wedding, from parent’s siblings, from spouse, among others are not taxable and should be declared under exempt income.
Any item or cash is treated as a gift when the receiver gets it without giving any monetary service in return.
ITR forms seek detailed disclosure of gifts and not just the aggregate amount. In the case of movable property, such as shares, jewellery, art pieces etc, the fair market value (FMV) of the item is stated in the tax return. For immovable property, stamp duty is considered.
Non-recurring income: Earnings from gambling, lottery, horse racing, crossword puzzles, betting and other card games are taxed under IFOS. No tax exemption is available for income from these activities. Interest earned on excess tax paid to the government is also taxed under IFOS.
Family pension: If you are a legal heir of a deceased person earning a pension, then you have to declare the pension received as other income. I-T laws allow a deduction on family pension. The lower of one-third of the total pension or ₹15,000 can be claimed as a tax deduction and the remaining sum is declared as income under IFOS head and taxed at slab rates. Further, any uncommuted pension, which refers to pension received periodically, from an authorized fund in which the taxpayer has contributed is also taxed under IFOS.
