KNOWLEDGE CENTRE Tax Planning / Which Investments Fall Under Other Income Category

Which Investments Fall Under Other Income Category

Income and expenses are generally considered as two sides of a coin. However, this is not the case, simply because you will continue to incur expenses irrespective of your earnings. If you have higher earnings, you might spend more but if you have no earnings, you will still have to bear some minimum expenses.

Income and taxes have a direct relationship. If you have an income, there will be taxes that must be paid. If your income is below the minimum taxable slab then, you would still need to file your Income Tax Return (ITR) as nil. If you are to file an ITR then you should know the classification of the various sources of incomes.

Either way, it is very important to understand the ITR heads to utilize the available tax-saving investments in an efficient manner. Here are five income heads that are identified as below by the Income Tax Department for the purpose of your tax and ITR filings:

  • Income from house property
  • Income from capital gains or loss
  • Income from salary
  • Income from business and profession
  • Income from other sources

The first four sources of income are self-explanatory however, the last one—‘other sources’ is not clear enough. Very simply put all income sources that do not fall under any of the first four categories are classified under other sources. Understanding this classification is important to ensure you are able to carry out accurate tax planning.

1. Interest income from mutual funds

All interest income is classified under the income from other sources whether it is earned on your savings bank account, fixed deposits (FDs), or recurring deposits (RDs). Even if the interest income is from tax-saving schemes and is exempt from tax such as that from Equity-Linked Savings Schemes investments, it is to be listed hereunder and then claimed as an exemption.

Under Section 80TTA of the Income Tax Act, a maximum of INR 10,000 interest income is exempted from tax. For interest from post office deposits, an amount of INR 3,500 is tax exempt, and the balance may be claimed for exemption under Section 80TTA of the Income Tax Act, up to a maximum deduction of INR.

On all interest incomes, the banks and other non-banking financial institutions are obliged to reduce the Tax Deducted at Source (TDS) from the interest and disburse the balance amount. This tax must be deposited to your Permanent Account Number (PAN) and you may find these deposits in the Form 26AS.

Banks typically deduct 10% of the interest amount as TDS if they have your PAN and 20% if they do not. However, given the recent developments, if your PAN and Aadhaar details are not updated in your account, you will not be able to access such accounts until you fulfil these mandatory requirements.

If you are certain your interest income is below the taxable limit then you may submit the duly filled Form 15G, if your age is below 60 and Form 15H, if you are a senior citizen, to the bank and request them not deduct TDS on your interest income. These forms have to be submitted every year along with your ITR filings.

In a similar manner, interest income from FDs is to be calculated and reported annually, even if you are to realize it at the end of the tenure. The interest on your FD principal is added to the principal for the following term and thus you realize it only at the end of the tenure, but these interest amounts are to be shown as your income in the respective financial year and not in the year that the FD matures. The same applies to your interest income from RD.

2. Interest Gained From Provident Funds

You may invest in provident funds because these are one of the best tax-saving schemes. The maturity amounts or withdrawals from your Employee Provident Fund (EPF) and Public Provident Fund (PPF) are to be listed under income from other sources and claimed as exempt income.

3. Interest Obtained From Family pension

From the pension you collect on someone who is deceased, there is an exemption of INR 15000 or 1/3rd of the amount and the rest is to be declared under income from other sources and added to your taxable income.

4. Money Received As Prizes

Prizes won from a lottery, television game shows, online games, and others are to be declared under income from other sources and will be taxed at a flat rate of 30% + cess.

Now that you are clear about all the income head classifications you may efficiently carry out your tax planning and for all the help that you might need for researching and analyzing the available investment option, you can rely on ARQ, our proprietary investment engine and a key highlight of our Angel Bee mobile application. This engine gives you findings and reports that are free of human bias after evaluating and analyzing over a billion data points. You receive customized recommendations on investments that suit your financial goals and risk profile through our technology-driven ARQ investment engine.

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