First of all let’s understand the various heads of income. As per the I.T. department all the modes of income are divided into 5 heads. They are :-
- Income from House or Property
- Income from Salary
- Earnings from Business and Profession
- Income from Capital Gains Or Losses
- Income from Other sources
Thus all such heads have their sub heads for the classification of all the income sources included under them. Currently for considering IFOS we would focus on its sub heads. The major sub headings for Income from Other Sources are :-
- Interest Income
- Deduction Under 80TTA for Interest Income
- Tax on FD and TDS avoidance related to FDs
- Family Pension
- Exempt Income
- Tax from Winnings, Lottery and Other Such modes like Puzzles or Quizzes or Game Shows
- Other Deductions
- Income from Royalty
- Income earned in form of insurance commission
- Dividend Income
Hence there are various modes of receiving income from other sources.
IFOS and Stock Markets
The income earned from the stock investments is recorded under this head. The income earned is taxable under two heads known as STCG and LTCG. These are said to be short term capital gain and Long term capital gain. There is also one rule. The losses from stock markets can only be set off against the gains from the stock market. This is to say that if a person makes a loss of 10 Lakh Rs during a year, then his losses are not accountable for deduction from then income earned from business or salary or any other source. This is to say that any income earned from share markets cannot be considered against deduction from business or professional loss. Similarly any losses made from share markets are accountable for deduction against the incomes generated from the share markets only.
The dividends received from stocks held are also included under this section. One thing to note here is that if divided if received by an individual then it is taxable directly. However if the dividend is exempt from tax if the company that issues the dividend is registered under DDT that is dividend distribution tax. Here the dividend received is already taxed by the issuing party and hence the investor is not obliged to pay any surcharge taxes on the same.
Life Insurance Income
The life insurance income earned is also covered under this segment. Whenever a person takes on a life insurance policy there are two ways of maturity. One comes during the maturity time and other in the event of the death of a person. Here there are two ways of taxability. If a person gets the amount before maturity then the premium amount should not exceed 20% of the maturity amount. Otherwise the exemption is not applied. However in an event of death of a person the entire income is given to the nominated person and no tax is applied on it whatsoever. In both the events income earned is considered under the IFOS section.
Gifts and Lotteries under IFOS
Gifts received in case of venture opening or marriage or any other occasion is recorded under this head. Also gifts received from various authorities and also in the form of inheritance is recorded under this head. The deduction that a person gets in such cases is limited to 50000 Rs regardless of the net total of all the amounts.
Balance Sheet and IFOS
The income from other sources in the balance sheet hold a completely different overview than what is discussed above. The above mentioned things refer to an individual whereas IFOS in Balance sheet refer to a company or an organisation.
The income from other sources should always be less than the income earned from the main business line of the organization. The reason is any business works to earn profits from its daily business activities. The turnover arising from the business transactions and the profit margins all together sum up to give us a number on the income earned by the company from its active and main business line. The income earned from other sources is just a description of the earnings from other sources and does of investments and business.
For instance let’s consider the interest income earned by a company if it disburses loans to other organisations or employees within its organisation. Also one should remember about the investments made in assets and properties which are not used but rented to other businesses (when the main source of business for a company is not rental income or real estate). Hence all such modes of investment would always generate income for the company. However they are not the mainstream of business. It is not the business line for which consumers put forth their money in the company.
Hence the IFOS segment of any company should always be low or else it is said that the company is not focusing on its business. On the other hand it is generating income from other modes of investments and has lost its goal and aim of earning profits. It is a small segment but carries a major role in deciding whether the company is working in a good way or not.