Taxation of Income from Other Sources in India: Key Q&A

Income from Other Sources: Key Questions and Answers

Q1. What is the name of the fifth head of income?

Ans: Income from other sources.

Q2. What are the essential conditions for chargeability of income under the head 'Income from Other Sources'?

Ans: The following conditions must be satisfied:

• (i) There must be an income that is not exempted from tax.
• (ii) The income must not be chargeable under any of the first four heads (i.e., other than the head 'Income from Other Sources').

Q3. Write two examples of income that are chargeable under the head 'Income from Other Sources'.

Ans:

• (i) Winning from lotteries
• (ii) Winning from crossword puzzles

Q4. Under which head is the salary of MP/MLA charged?

Ans: Income from other sources.

Q5. Define the term 'security'.

Ans: A security is the document acknowledging the debt taken by a specific authority from the general public.

Q6. How many types of securities are there? Name them.

Ans: There are two types of securities:

• (i) Tax-free securities
• (ii) Less tax securities

Q7. How do you treat allowances received by MP/MLA?

Ans: Daily allowance and constituency allowance received by MP/MLA are exempted.

Q8. What is a listed security?

Ans: Listed securities are those securities that are listed in a recognized stock exchange of India.

Q9. What is a non-listed security?

Ans: Non-listed securities are those securities that are not listed in a recognized stock exchange of India.

Q10. Under which head of income is a keyman insurance policy assessed?

Ans: Under the head 'Income from Other Sources', provided it is not taxable under the head 'Profits and Gains from Business or Profession'.

Q11. When is the income from interest on securities taxable under the head 'Income from Other Sources'?

Ans: When it is not assessed under the head 'Profits and Gains from Business or Profession'.

Q12. At what rate of tax is the income from winning from lotteries assessed?

Ans: The entire amount of such income shall be charged to tax u/s 115BB at a flat rate of 30% tax plus education cess @ 3% (including 1% secondary and higher education cess).

Q13. Who can claim a deduction for expenditure from the casual income earned by him u/s 56(2)(ib)?

Ans: A racehorse owner is entitled to claim a deduction in respect of expenditures incurred by him for maintaining racehorses.

Q15. When can the recipient of a lottery claim a deduction u/s 56 (2) (ib)?

Ans: According to the agreement, if an assessee forgoes a certain percentage of lottery income in favor of the government or to the concerned agency, the amount so forgone shall be deducted.

Q16. Are inter-source losses deductible?

Ans: No, inter-source losses are not deductible.

Q17. When will TDS be deducted?

Ans: TDS will be deducted in respect of winning from lotteries, card games, crossword puzzles, or other games, provided such income must exceed ₹10,000. However, in the case of winning from horse races, if the amount of winning exceeds ₹5,000.

Q18. Write two instances of the term 'Relative'.

Ans:

• (i) Spouse of the individual
• (ii) Brother or Sister of the individual

Q19. Write two instances of the term 'Property'.

Ans:

• (i) Immovable property being land or building or both
• (ii) Jewellery

Q20. Write the name of any two tax-free interest incomes.

Ans:

• (i) 12 years National Savings Annuity Certificate
• (ii) Post Office Cash Certificates (5 years)

Q21. In the case of Family Pension, how much amount is allowed as a deduction u/s 57 (ii a)?

Ans: 33 1/3% of the pension amount or ₹15,000, whichever is less, is allowed as a deduction.

Q22. Write one instance of expense deductible under Section 57 (iii).

Ans: Interest paid on borrowing for investment in shares is allowed as a deduction from the dividend income of such shares.

Q23. Give one instance of an expense that is not deductible under section 57 (iii).

Ans: Interest on a loan taken for payment of income tax or wealth tax.

Q24. Write one instance of an expense that is not deductible u/s 58.

Ans: Any interest payable outside India without deducting tax at source.

Q25. Give two examples of 'Income from Other Sources'.

Ans:

• (i) Interest on Debenture received
• (ii) Dividend received from a foreign company

Q26. State the basis of charge of 'Income from Other Sources' under the Income Tax Act, 1961.

Ans: The basis of charge of 'Income from Other Sources' are:

• (i) There must be an income.
• (ii) The income must not be an exempted income.
• (iii) The income must not be chargeable under any of the other four heads of income.

Q27. Under which head will salary received by M.Ps and M.L.As from the Government be taxable?

Ans: Income from other sources.

Q28: Under the Income Tax Act, 1961, while calculating taxable income, will expenditure related to winning from a horse race be allowed as a deduction?

Ans: Yes.

Q29: "Income from sub-letting of a house is taxable under the head 'Income from Other Sources'." Why?

Ans: As the household unit does not belong to the tenant, income from sub-letting of a house is taxable under the head "Income from Other Sources."

Q30: When is an income taxable under the head 'Income from Other Sources'?

Ans: When an income is not taxable under any of the first four heads of Income (i.e. Income from Salary, Income from House Property, Profits and Gains of Business or Profession, Capital Gains), then it is taxable under the head 'Income from Other Sources'.

Q31: Give two examples of income that are taxable under the head 'Income from Other Sources'.

Ans:

• (i) Dividend from a foreign company.
• (ii) Bank Interest.

Q32: Under which head of income is rent received from a vacant land taxable?

Ans: Income from other sources.

Q33: Salary received by M.Ps and M.L.A.s from the government is taxable under which head of income?

Ans: Income from other sources.

Q34: Under which head of income is interest on a fixed deposit in a bank taxable?

Ans: Income from other sources.

Q35: Remuneration received by a teacher for evaluating answer scripts of Calcutta University is taxable under which head of income?

Ans: Income from other source.

Q36: Are expenses relating to a horse race deductible from income from a horse race, under the Income Tax Act?

Ans: Yes.

Q37: What is the maximum amount of deduction available on interest on Post Office Savings Bank Deposit under the Income Tax Act, 1961?

Ans: Under Section 10 (15) ₹ 3,500 for an individual Account and 7000 in the case of a Joint account will be deducted from the interest received on a Post Office Savings Bank Deposit Account.

Q38: Why is rent received by a tenant from his rented (let out) premises taxable under the head 'Income from Other Sources'?

Ans: If rent is received by a tenant by subletting his rented unit, then its income will be taxable under the head 'Income from Other Sources'.

Stores and Wage Calculations: Key Questions and Answers

Q.9. Give one advantage of the FIFO method.

ANS: It is simple to understand and easy to operate.

Q.10. Mention the document on the basis of which the Storekeeper issues raw materials from the stores.

ANS: On the basis of the Store Requisition Note, the storekeeper issues raw materials from the stores.

Q.11. How would you show a shortage of raw materials in the Stores Ledger Account?

ANS: A shortage of raw materials is shown in the Stores Ledger Account as an issue of materials.

Q.12. The opening balance of raw materials is 100 units @ Rs. 6. If 100 units of raw materials are purchased @Rs. 8 per unit and 120 units of materials are issued, then what will be the value of raw material issued under "Simple Average Method"? [H.S. 2016]

ANS: Value of raw material issued = 120 × (6+8)/2 = 120×7=Rs. 840

Q.13. What is the document given by the storekeeper on receipt of raw materials in store? [H.S. 2016]

ANS: Materials Received Note.

Q.14. When the purchase price of raw materials fluctuates regularly, then mention the suitable method for the pricing of the issue of materials. [H.S. 2016]

ANS: Weighted Average Method.

Q.15. What do you mean by pricing of material issues?

ANS: Pricing of material issues means charging a definite price by the costing department for each item of materials issued from stores by the storekeeper and recording the same in the stores ledger by the costing department.

Q.16. What do you mean by the weighted average method of material issue?

ANS: Under this method, the issue price is calculated by dividing the value of materials in hand by the number of units in hand.

Q.17. What do you mean by Bill of Material?

ANS: A Bill of Materials is a schedule of materials needed for a job or unit of production. It is generally prepared by the Engineering or Planning Department as soon as an order is received.

Q34. Write down two advantages of the time rate system of wage payment.

ANS:

• (2) Wages calculated can be verified by the workers from the specified rate and the gate time and hence there will be no suspicion.
• (3) The worker is assured to receive a certain amount after a definite period.

Q. Write one difference between the Piece Rate System and the Time Rate System of wage payment.

ANS:

Time Rate System:

• (1) The system is simple and wages can be easily calculated without much clerical effort. It is easily understandable by both employer and employee.
• (2) Wages calculated can be verified by the workers from the specified rate and the gate time and hence there will be no suspicion.

Piece Rate System:

• (1) The system is simple to operate and easy to understand.
• (2) The incentive is quite effective since the employee gets the full benefit of an increase in production.

Q. What is Direct Wages?

ANS: Direct wages comprise wages paid to workers who are engaged in altering the composition or condition of raw materials in order to produce a product in a manufacturing concern. In a service industry, direct wages will comprise the wages of those who directly carry out the service.

Q. What is the formula for calculating bonus under the Rowan Premium Plan?

ANS: Formula of Bonus under Rowan premium Method (Time Saved / Time Allowed) x Time Taken x Rate per hour = (S-T)/S x T x R = Time Saved / Standard Time x Basic Wages.

Standard time for work is 48 hours. If the efficiency level of a worker for that work is 120%, then what will be the actual time taken for said work?[H.S. 2019]

Standard Time / Efficiency of worker = Actual Time
48 / (120/100) = X
X= 48 x 100 / 120 = 40 hours.