Quick Answer
18 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer
Income from other sources is the residual (fifth) head under the Income Tax Act 2025, covering all income not taxable under salary, house property, business/profession, or capital gains. Key components include interest on deposits, dividend income (taxable at slab rates since DDT abolition), gifts exceeding Rs 50,000, lottery and gaming winnings (flat 30%), and family pension (with a deduction of Rs 15,000 or one-third).
6. Gifts of Shares and Securities — FMV Rule
When shares, securities, jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art are received without consideration, and the aggregate fair market value (FMV) exceeds Rs 50,000, the entire FMV is taxable. When received for inadequate consideration, and the FMV exceeds the consideration by more than Rs 50,000, the difference is taxable.
For listed shares, FMV is the closing price on the stock exchange on the date of transfer (or the immediately preceding trading day if no trading occurred). For unlisted shares, FMV is determined based on the book value of assets (including goodwill) as per the most recent audited balance sheet. This FMV determination is critical for transactions between family members during estate planning and for startup founders transferring shares at concessional rates to early employees or advisors.
7. Winnings from Lottery, Games & Online Gaming
Winnings from lottery, crossword puzzles, horse races (exceeding Rs 10,000), card games, online gaming, betting, gambling, and any game show are taxed at a flat rate of 30% (plus surcharge and cess), irrespective of the taxpayer’s other income or slab rate. No deduction for any expenditure or allowance is permitted against this income — the gross amount of winnings is taxable.
7.1 TDS on Winnings
The payer (lottery organiser, gaming platform, casino) must deduct TDS at 30% on the winnings before payout. For horse race winnings, TDS is deducted only if the amount exceeds Rs 10,000. For online gaming, TDS is deducted on the net winnings at the end of the financial year or at the time of withdrawal from the user account, whichever is earlier.
7.2 Online Gaming — Special Provisions
The Income Tax Act 2025 contains specific provisions for online gaming income that were introduced from 1 April 2023. The net winnings from online gaming (including fantasy sports, poker, rummy, and other games) are computed as the total amount withdrawn from the gaming account plus the closing balance, minus the aggregate of deposits and the opening balance. TDS at 30% is deducted by the online gaming platform at the time of withdrawal or at year-end on the net balance. No distinction is made between games of skill and games of chance — all online gaming income is taxed at the flat 30% rate. Losses from one game cannot be set off against winnings from another game for tax purposes.
7.3 Comparison with VDA/Crypto
While lottery and gaming winnings are taxed under income from other sources at 30%, cryptocurrency and VDA gains are also taxed at 30% but under a separate provision. Both share the characteristic of no deduction for expenses (except cost of acquisition for VDAs) and no loss set-off. The TDS rates differ — 30% for gaming versus 1% for VDA transfers.
8. Family Pension — Deduction Rules
Family pension is the pension received by the spouse, children, or other dependents of a deceased employee from the employer of the deceased. It is important to distinguish family pension from regular pension:
Regular pension: Received by the retired employee directly — taxable as salary income and qualifies for the standard deduction.
Family pension: Received by legal heirs after the employee’s death — taxable under income from other sources with a separate deduction.
8.1 Deduction on Family Pension
Under the old regime, a deduction of Rs 15,000 or one-third of the family pension, whichever is lower, is available. Under the new regime, the deduction is enhanced to Rs 25,000 or one-third of the family pension, whichever is lower. This deduction is available per recipient per year.
For example, if a widow receives family pension of Rs 60,000 per year under the new regime, the deduction is the lower of Rs 25,000 and Rs 20,000 (one-third of Rs 60,000) = Rs 20,000. Taxable family pension = Rs 40,000. If the pension is Rs 1,20,000, the deduction is the lower of Rs 25,000 and Rs 40,000 = Rs 25,000. Taxable amount = Rs 95,000.
9. Interest on Enhanced Compensation
When land is compulsorily acquired by the government, courts often award enhanced compensation along with interest on the enhanced amount. While the enhanced compensation itself may be a capital receipt (taxable as capital gains or exempt under specific provisions), the interest received on such enhanced compensation is taxable under income from other sources.
A deduction of 50% of such interest is available under Section 57. This recognises the fact that interest on enhanced compensation often accrues over many years but is received in a lump sum. The effective tax is therefore on only 50% of the interest amount. Additionally, if the lump-sum receipt results in a higher tax bracket, relief under Section 89 may be claimed to reduce the bunching effect. The set-off rules apply normally to this income.
10. Agricultural Income — Exempt but Rate Purposes
Agricultural income is exempt from income tax under the Constitution of India (Entry 82, List I of the Seventh Schedule). However, for the purpose of computing the tax rate applicable to non-agricultural income, agricultural income is partially integrated.
10.1 Partial Integration Method
The partial integration applies when: (a) the taxpayer has non-agricultural income exceeding the basic exemption limit, AND (b) agricultural income exceeds Rs 5,000. The method works as follows:
Step 1: Add agricultural income to non-agricultural income to get the total income
Step 2: Compute tax on this total income at applicable rates
Step 3: Add agricultural income to the basic exemption limit
Step 4: Compute tax on the amount in Step 3 at applicable rates
Step 5: Actual tax payable = Step 2 minus Step 4
This ensures that while agricultural income itself is not taxed, it pushes the non-agricultural income into a higher slab bracket. For example, a farmer with agricultural income of Rs 4 lakh and business income of Rs 8 lakh will pay tax on the Rs 8 lakh at a higher effective rate than if the agricultural income did not exist. The agricultural income is commonly derived from cultivation of land, income from farm buildings, and income from saplings and seedlings grown in a nursery.
11. Deductions Allowable Under This Head
Unlike the house property head (which provides a flat 30% standard deduction) or the business head (which allows all business expenses), the deductions available from income from other sources are limited and specific.
| Income Type | Deduction Allowable | Limit |
|---|---|---|
| Dividend income | Interest on borrowed capital for acquiring shares (old regime only) | 20% of dividend income |
| Family pension | Standard deduction from family pension | Rs 15,000 or 1/3rd (old); Rs 25,000 or 1/3rd (new) |
| Interest on enhanced compensation | 50% of such interest | 50% (no monetary cap) |
| Rental income from machinery/plant | Depreciation and current repairs on the asset | Actual expenditure |
| Any other income under this head | Expenditure wholly and exclusively for earning such income | Actual expenditure (subject to reasonableness) |
| Lottery/gaming/betting winnings | No deduction whatsoever | Nil |
| Gift income | No deduction | Nil |
The general principle is that any expenditure incurred wholly and exclusively for the purpose of earning income from other sources is deductible — but this must be specific and demonstrable. Bank locker rent used to keep securities may be claimed, as may brokerage paid for collecting dividend income. However, personal expenses or expenses of a capital nature are not deductible.
12. Key Money, Non-Compete Fees & Other Items
12.1 Key Money and Tenancy Premiums
Amounts received by a person as key money (lump-sum premium for granting tenancy rights) or pagdi when the person is not the owner of the property are taxable under income from other sources. If the recipient is the owner, it is taxable under the house property head. This distinction is important for landlords and sub-lessors.
12.2 Non-Compete Fees
Amounts received for agreeing not to carry on a particular business activity or not to share technical knowledge are taxable under income from other sources. Previously, there was ambiguity about whether such receipts were capital or revenue in nature. The 2025 Act (continuing the position from the 2009 amendment) specifically includes non-compete fees in the ambit of income from other sources, removing the ambiguity. However, if such fees are received in connection with the transfer of a business, they may be taxed under the business head or as capital gains depending on the facts.
12.3 Interest on Income Tax Refund
Interest received on income tax refunds under Section 244A (at 0.5% per month or part of a month) is taxable under income from other sources. Many taxpayers overlook this, but the Income Tax Department includes this interest in the refund order, and it must be declared in the return for the year in which the refund is received.
12.4 Income from Sub-Letting
If a tenant sub-lets the property and earns rental income, such income is not taxable under the house property head (since the sub-lessor is not the owner) but under income from other sources. Deductions for rent paid to the original landlord and other expenses incurred for earning the sub-letting income are available.
12.5 Interest on Excess EPF Contribution
For employees whose own EPF contribution exceeds Rs 2.5 lakh per year (Rs 5 lakh if the employer does not contribute), the interest earned on the excess contribution is taxable under income from other sources. The EPF trust maintains separate accounts for the taxable and non-taxable portions. This provision, introduced in 2021, continues under the 2025 Act and affects high-salaried employees with basic pay above approximately Rs 2.08 lakh per month.
13. Changes from the 1961 Act
The Income Tax Act 2025 retains the substantive framework for income from other sources while reorganising the provisions for clarity. The key continuities and changes are:
Continuations: The Rs 50,000 gift threshold, the relative definition for gift exemptions, the 30% flat rate on lottery and gaming winnings, the family pension deduction, the 50% deduction on enhanced compensation interest, and the partial integration method for agricultural income all continue unchanged.
Structural improvements: The scattered gift taxation provisions (which were in Section 56(2)(vii), (viia), and (x) of the 1961 Act, each with slightly different rules for different periods) are now consolidated into a single, clear framework. The online gaming provisions (introduced in 2023) are now fully integrated rather than being treated as amendments to an older structure.
New regime implications: Under the new regime (default), the loss of Section 80TTA (savings interest deduction of Rs 10,000) and Section 80TTB (senior citizen interest deduction of Rs 50,000) increases the effective tax on interest income. The loss of the interest-on-borrowed-capital deduction against dividends (capped at 20%) also increases dividend tax under the new regime. These impacts should be factored into the regime selection decision.
Expert View — CA V. Viswanathan
Income from other sources often catches taxpayers off guard during assessment because it includes many items that people do not instinctively recognise as taxable income. The three most common oversights I encounter in practice are: (1) failing to declare FD interest from multiple banks (each bank issues a TDS certificate, but taxpayers forget to aggregate them), (2) not recognising that gifts from non-relatives above Rs 50,000 are fully taxable (especially cash gifts at family functions from non-family members), and (3) overlooking interest on income tax refunds. With the abolition of DDT, dividend income has become a significant tax item for investors with large equity portfolios — at the 30% slab, the tax on dividends is substantially higher than under the old DDT regime. I advise clients to consider growth options in mutual funds instead of dividend options to defer the tax until redemption (which would then be taxed as capital gains at the potentially lower LTCG rate of 12.5%). For any complex situations involving gifts or property transactions, the Virtual Auditor team can assist with proper reporting.
Key Takeaways
- Income from other sources is the residual head — covers all income not falling under the other four heads
- Interest on FDs is taxable on accrual basis at slab rates; TDS at 10% applies above Rs 40,000 (Rs 50,000 for seniors)
- Dividends are taxable at slab rates in the shareholder’s hands since DDT abolition in 2020
- Gifts exceeding Rs 50,000 from non-relatives are fully taxable; gifts from relatives, on marriage, and under will are exempt
- Lottery, gaming, and betting winnings are taxed at flat 30% with no deductions permitted
- Online gaming income is computed on a net-winnings basis with 30% TDS by the platform
- Family pension qualifies for a deduction of Rs 15,000/one-third (old) or Rs 25,000/one-third (new)
- Interest on enhanced compensation gets a 50% deduction under Section 57
- Agricultural income is exempt but included for rate calculation on non-agricultural income
- Section 80TTA/80TTB deductions on savings/FD interest are not available under the new regime
Frequently Asked Questions
What types of income fall under income from other sources?
Income from other sources is the residual head that covers all income not taxable under salary, house property, business/profession, or capital gains. Common examples include interest on fixed deposits and savings accounts, dividend income from domestic and foreign companies, gifts exceeding Rs 50,000, family pension, winnings from lottery and games, interest on enhanced compensation, key money, and non-compete fees.
How is interest income on fixed deposits taxed?
Interest on fixed deposits is fully taxable at the applicable slab rate under income from other sources. It is taxable on an accrual basis — meaning it is taxable in the year it accrues, even if not received. Banks deduct TDS at 10% if the total interest exceeds Rs 40,000 per year (Rs 50,000 for senior citizens). Under the old regime, a deduction of up to Rs 10,000 was available under Section 80TTA for savings account interest (Rs 50,000 for senior citizens under 80TTB), but these deductions are not available under the new regime.
How are dividends from Indian companies taxed under the 2025 Act?
Dividends from Indian companies are fully taxable in the hands of the shareholder at the applicable slab rate. The Dividend Distribution Tax (DDT) regime was abolished in 2020, and dividends are now taxable as income from other sources. Companies deduct TDS at 10% on dividends exceeding Rs 5,000 per year. Under the old regime, a deduction of up to 20% of dividend income is available for interest on borrowed capital used to acquire the shares.
What is the gift taxation rule under the Income Tax Act 2025?
Gifts received by an individual or HUF are taxable if the aggregate value exceeds Rs 50,000 in a financial year. If the threshold is crossed, the entire amount is taxable, not just the excess. Exemptions apply for gifts from relatives, gifts on marriage, gifts under a will or inheritance, gifts from local authorities or approved institutions, and certain other specified categories. Gifts include cash, immovable property, and movable property like shares and jewellery.
How are lottery and online gaming winnings taxed?
Winnings from lottery, crossword puzzles, horse races, card games, online gaming, and other games of chance or skill are taxed at a flat rate of 30% plus surcharge and cess. No deduction for any expenditure or allowance is permitted against such income. TDS is deducted at 30% by the payer. For online gaming, the net winnings (deposits minus withdrawals) at the end of the financial year are subject to TDS.
What is the deduction available on family pension?
Family pension received by the legal heir of a deceased employee is taxable under income from other sources (not salary). A deduction of Rs 15,000 or one-third of the pension received, whichever is lower, is available. Under the new regime, the deduction for family pension is Rs 25,000 or one-third, whichever is lower. This is in addition to the standard deduction available for salaried individuals.
How is interest on enhanced compensation taxed?
Interest received on enhanced compensation (typically from land acquisition cases where courts award additional compensation) is taxable under income from other sources. A deduction of 50% of such interest is available under Section 57. This interest is often received in a lump sum covering multiple years, and relief under Section 89 may be available to reduce the bunching effect.
Is agricultural income taxable under the Income Tax Act 2025?
Agricultural income is exempt from income tax under Article 270 of the Constitution. However, if a taxpayer has both agricultural and non-agricultural income, the agricultural income is included for the purpose of computing the tax rate on non-agricultural income (partial integration method). This applies only if non-agricultural income exceeds the basic exemption limit and agricultural income exceeds Rs 5,000.
How are gifts of immovable property taxed?
If immovable property is received without consideration (as a gift) and the stamp duty value exceeds Rs 50,000, the entire stamp duty value is taxable as income from other sources. If received for inadequate consideration, and the stamp duty value exceeds the consideration by more than Rs 50,000, the difference is taxable. Exemptions apply for gifts from relatives, on marriage, under will, etc.
What deductions are allowable from income from other sources?
Limited deductions are available: collection charges for dividend income, interest on borrowed capital for acquiring dividend-paying shares (up to 20% of dividend income, old regime), deduction of Rs 15,000 or one-third for family pension, 50% deduction on interest on enhanced compensation, and any expenditure incurred wholly and exclusively for earning such income. No deduction is allowed against lottery winnings or gift income.
