Section 56(2) of the Income Tax Act, 1961, lays down specific types of income that are taxable under the head ‘Income from Other Sources.’ These provisions ensure that diverse and residual income streams are brought into the tax net, addressing income categories explicitly not covered under other heads.

Key Incomes Taxable Under Section 56(2)

The specific incomes taxable under Section 56(2) include:

1. Dividends:
   • Dividends not exempt under Section 10(34) are taxable under this section.
   • This includes income from shares of domestic and foreign companies.
2. Interest on Securities:
   • Income from interest on debentures, bonds, or other securities is taxable unless covered under business income.
3. Gifts:
   • Monetary Gifts: Money received without consideration exceeding ₹50,000 during a financial year is taxable, except for exemptions.
   • Immovable Property Gifts: Property received without consideration or for inadequate consideration is taxable if the stamp duty value exceeds prescribed limits.
   • Movable Property Gifts: Tax applies if the aggregate fair market value exceeds the prescribed limits.
4. Winnings from Lotteries, Crossword Puzzles, and Gambling:
   • Entire income from such winnings is taxable at a flat rate of 30% (plus surcharge and cess), without any deductions.
5. Rental Income from Letting of Plant, Machinery, or Furniture:
   • If these assets are not part of business income, rental income from such lettings is taxable under this head.
6. Income from Composite Letting:
   • In cases where plant, machinery, or furniture is let along with a building and the rent is inseparable, the entire income is taxable as ‘Income from Other Sources.’
7. Income from Keyman Insurance Policies:
   • Any sum received under a Keyman Insurance Policy is taxable unless it is received upon the maturity or by the nominee on the death of the insured.
8. Income from Sub-letting:
   • Rent or income derived from sub-letting a property, when not assessed as business income, is taxable here.
9. Interest on Compensation or Enhanced Compensation:
   • Interest received on delayed compensation or enhanced compensation for compulsory acquisition of property is taxable under Section 56(2).
10. Income from Non-compete Agreements:
    • Payments received under agreements to refrain from competing with another business are taxable under this head.

Exemptions and Exceptions

Certain exemptions are available under Section 56(2):

• Gifts received from specified relatives (e.g., spouse, siblings, parents) or on occasions like marriage.
• Dividends covered under specific exemptions.

Deductions Allowed

Under Section 57, taxpayers can claim certain deductions:

• Deduction of expenses incurred exclusively to earn the income, such as collection charges for rent.
• No deductions are allowed for winnings from lotteries, games, or horse races.

Examples for Better Understanding

1. Gift Taxation:
   • Mr. A receives a cash gift of ₹1,00,000 from a friend. The amount exceeding ₹50,000 (₹50,000) will be taxable.
2. Interest on Compensation:
   • Ms. B receives ₹2,00,000 as delayed compensation for land acquisition. The interest portion is taxable under Section 56(2).
3. Rental Income:
   • A company lets out unused machinery for ₹30,000 annually. This income is taxable under this section.

Judicial Interpretation

In CIT vs. Pratima Poddar, the court clarified that gifts are taxable only when exceeding the prescribed threshold and do not fall under specific exemptions.

Conclusion

Section 56(2) ensures the taxability of income streams that do not fit into traditional heads. Taxpayers must carefully classify such incomes and assess their chargeability under this section to ensure compliance and minimize penalties. Understanding the provisions and allowable deductions is crucial for accurate filing.

Additional Resources

Learn more about Tax Provisions on the official Income Tax India website.

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