1. Almost everything you own and use for personal or investment purposes is a capital asset.
Examples include a home, personal use items like household furnishings, and stocks or bonds
held as investments. When a capital asset is sold, the difference between the basis in the asset
and the amount it is sold for is a capital gain or a capital loss. Generally an asset's basis is its
cost, however, if you received the asset as a gift or inheritance, refer to Topic 703 for
information about your basis. You have a capital gain if you sell the asset for more than your
basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of
personal-use property, such as your home or car, are not deductible.
Capital gains and losses are classified as long-term or short-term. If you hold the asset for more
than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one
year or less, your capital gain or loss is short-term. To determine how long you held the asset,
count from the date after the day you acquired the asset up to and including the day you disposed
of the asset.
Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF),
Capital Gains and Losses, and on Form 8949 (PDF), Sales and other Dispositions of Capital
Assets. If you have a net capital gain, that gain may be taxed at a lower tax rate than your
ordinary income tax rates. The term "net capital gain" means the amount by which your net long-
term capital gain for the year is more than your net short-term capital loss for the year. The term
“net long-term capital gain” means long-term capital gains reduced by long-term capital losses
including any unused long-term capital loss carried over from previous years. Generally, net
capital gain is taxed at rates no higher than 15%. However, for the years 2008 through 2012,
some or all net capital gain may be taxed at 0% if you are in the 10% or 15% ordinary income
tax brackets.
There are three exceptions where capital gains may be taxed at rates greater than 15%:
1. The taxable part of a gain from selling Section 1202 qualified small business stock is
taxed at a maximum 28% rate.
2. Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum
28% rate.
3. The portion of any unrecaptured Section 1250 gain from selling Section 1250 real
property is taxed at a maximum 25% rate.
Note: Net short-term capital gains are subject to taxation at your ordinary income tax rate.
If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to
Publication 505, Tax Withholding and Estimated Tax, for additional information.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed
is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss as
shown on line 16 of the Form 1040, Schedule D (PDF). If your net capital loss is more than this
limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover
Worksheet found in either Publication 550, Investment Income and Expenses, or the Form 1040,

2. Schedule D Instructions (PDF), Capital Gains and Losses, to figure the amount eligible to be
carried forward.
2
When does Capital Gain arise?
Capital Gains arise only where there is some capital asset. The capital asset is transferred by the
assessee and such transfer takes place during the previous year. The consideration received
thereon is more then the cost of purchase of that asset.
What is Capitla Gain Asset?
Capital asset means property of any kind held by the assessee, whether or not connected with his
business or profession, but does not include the following:
Any stock in trade, consumable stores or raw material
Personal effects, i.e., moving property but excluding jewelry
Agricultural land situated at places other than urban areas
Certain Gold Bonds(which have already matured)
Special Bearer Bonds, 1991
Gold Deposit Bonds issued under Gold Deposit Scheme, 1999
What are the items excluded from Capital Asset?
Jewelry:
Jewelry in any form will not be treated as a Capital Asset.Jewelry means here by specificaly
given as under:
Jewelry in common parlance
Ornaments made of gold, silver, platinum or any other precious metal

3. Precious and semi-precious stones whether kept loose, or embedded in jewellary,
furniture, wearing apparel, utensils, or any other article
Motor car and other conveyances:
Motor car or any other conveyance held for personal use of the assessee can be treated as
personal effect for capital gain purposes and also cannot be treated as a „Capital Asset‟.
Agricultural land situated at places other than urban areas:
The Income Tax Act defines urban area as:
Area within the jurisdiction of a municipality or cantonment which has a
population of at least 10000 according to latest published census figures
Areas within a radius of not more than 8 kilometers from the aforesaid areas
What is Transfer of Asset?
Transfer, for the purpose of Income Tax, has been given a very wide definition. However,
for salaried employees, it covers the following:
Sale of an asset
Exchange of an asset
Extinguishing of any right in an asset
Compulsory acquisition of an asset under any law
Maturity/redemption of zero coupon bond (from 01-04-2006)

4. When Transactions does not regarded as transfer?
However, following transactions are not regarded as transfer as per Income Tax Act:
Distribution of capital assets on total or partial partition of HUFs
Transfer of capital assets under:
A gift
A will
An irrevocable trust
Conversion of bonds or debentures into shares or debentures
Transfer to the Government or a University or the National Museum National Art
Gallery, National Archives or to any notified public museum or institution, of the
following:
Any work of art
Archaeological, scientific or art collection
Books
Manuscripts
Drawings
Paintings
Photographs or prints
What is Short-term Capital Assets?
The period for which an asset has been held by the assessee prior to its transfer is relevant in
determining the quantum of capital gains liable for tax and its applicable tax rate.

5. For this purpose, the act classifies the assets into two categories:
Short-term capital asse
Long-term capital asset
Short- term Capital Asset
A capital asset held by an assessee for not more than 36 months immediately preceding the date
of its transfer, is known as short-term capital asset.
However, the following assets shall be treated as short-term, if the period of holding is up to
12 months:
Shares held in a company - equity or preference
Any other security listed in a recognized stock exchange in India
Units of Unit Trust Of India
Zero Coupon Bonds (from 01-04-2006)
What is Long-Term capital Assets?
The period for which an asset has been held by the assessee prior to its transfer is relevant in
determining the quantum of capital gains liable for tax and its applicable tax rate.
For this purpose, the act classifies the assets into two categories:
Short-term capital asset
Long-term capital asset
Long- term Capital Asset

6. Any capital asset which is not a short-term capital asset will be treated as a long-term capital
asset.
However, in the following conditions, the period for which the asset was held by the „pervious
owner‟ should also be included:
Shares held in a company - equity or preference
Distribution of capital assets on total or partial partition of HUF
Under a will or gift
By succession or devolution
Distribution of assets on the liquidation of a company
How is the consideration received on Deemed Basis?
If the consideration received for an asset being land and building is less than the value
determined by stamp duty authorities, then the value determined by stamp duty authorities will
be deemed to be full value of consideration.
However, the assessing officer may refer the valuation to the valuation officer if the assessee
claims that the value determined by stamp duty authority is less than the fair market value.
After receipt of the Valuation Officer‟s report, the deemed value of consideration will be taken
as:
The value determined by the valuation officer or
The value determined by the stamp duty officer, whichever is less.
How to calculate net consideration received?

7. Net consideration received is calculated by deducting the following amounts from full value of
consideration:
Cost of stamp paper purchased
Stamp duty and registration fees
Brokerage and commission paid to negotiators/agents
Any legal expenses incurred by the transferor to effect transfer of title
If such expenses are borne by the assessee
What is meant by cost of Acquistion?
Amount expanded by the assessee for acquiring assets is known as cost of acquisition.
However, this rule has certain exceptions
Assets acquired in certain specific situations:
Given are the cases where cost to previous owner is taken as cost of acquisition.
Distribution of assets on partial/total partition of HUF
Under will or gift
By succession, inheritance or devolution
Distribution of assets on liquidation of companies
When cost of acquistion is be taken on fair market value?
Given are such cases:
Where the capital asset became the property of the assessee before 01-04-1981

8. Where the assets has been acquired by assessee as:
A gift
A will
An irrevocable trust and the capital asset became the property of the previous
owner before April 01, 1981.
What is the cost of improvement for Assets?
The act defines „cost of improvements‟ as „all expenditure in making additions or alterations to
the capital assets‟.
However, following items are not considered as cost of improvements since they do not go to
enhance the value of property:
Property taxes
Routine repairs and maintenance expenses
Expenditure on removing encumbrances, if any, to property
Estate duty, if any, paid on inherited property
Expenditure, if any, incurred on improving title to the property
How to compute short-term capital gains?
Computation of short-term capital gains may take the following steps:
Determine full value of consideration
Determine net consideration
Deduct from „net consideration‟ the cost of acquisition and cost of
improvements, if any, made to the assets
Resultant figure will be taxable as short-term capital gains.

9. What is tax on Short-term capital Gains?
Short-Term capital gain on shares will be taxed @ 10% subject to following conditions:
The taxpayer is an Individual/HUF/Firm/Company/Any other tax payer
Short-term capital gain must arise from sale of shares
The transaction of sale of such shares, etc., is entered into on or after 10.09.2004
Such transaction is chargeable to securities transaction tax
How to comute long-term capital gains?
Dividend and Capital gain taxation from 1 April 2007
Individuals Corporate NRI *
Dividend
Equity schemes Tax free Tax free Tax free
Debt schemes Tax free Tax free Tax free
Dividend distribution tax
Equity schemes Nil Nil Nil
Debt schemes 12.5% + 10% surch.
+ 3% cess
12.5% + 10% surch.
+ 3% cess
12.5% + 10% surch.
+ 3% cess
14.163% 22.66% 14.163%
Money market and Liquid
schemes
25% +10% + 3% 25% +10% + 3% 25% 10% +3%
28.325% 28.325% 28.325%
Long term Capital gains
Equity schemes Nil Nil Nil
Debt schemes 10% without
indexation or 20%
10% without
indexation or 20%
10% without
indexation or 20%

10. with indexation
whichever is lower +
10% + 3% cess
with indexation
whichever is lower +
10% + 3% cess
with indexation
whichever is lower
+ 10% + 3% cess
Without indexation 11.33% 11.33% 11.33%
With indexation 22.66% 22.66% 22.66%
Short term Capital gains
Equity schemes 10% flat +10%+3% 10% flat +10%+3% 10% flat +10%+3%
11.33% 11.33% 11.33%
Debt schemes 30% +10%+3% 30% +10%+3% 30% +10%+3%
33.99% 33.99% 33.99%
Short term Long term
Equity 11.33% NIL
Debt 33.99% 22.66%
What is the tax on Long-Term Capital Gain?
Long Term Capita Gain (LTCG) normaly charged at a flat rate of 20% if the transfers assets is
computed with indexation.But if it is computed without useing indexation it will be charges at
10% accordingly. However, whichever option is more suitable to the tax payer can chose and tax
liability will be applicable accordingly.
What is Indexation Benefit?
Long Term Capital Gain is chargeable to tax at a flat rate of 20% amd the gain can be adjusted
for inflation cost. This inflation adjustment is called Indexation Benefits
How to compute indextaion cost of Long-Term Capital gains?
For assets acquired by the assessee either by himself or in any manner specified before
01.04.1981:
Indexed cost of acquisition =

11. Fair market value as on 01.04.81 * Cost inflation index for the year
in which asset is transferred
___________________________________________________
Cost inflation index for 1981-82
For assets acquired by the assessee either by himself or in any manner specified after
01.04.1981 and before 01.04.1981 by previous owner:
Indexed cost of acquisition =
Fair market value as on 01.04.81 * Cost inflation index for the year
in which asset is transferred
___________________________________________________
Cost inflation index for the year in which asset is first acquired by the assessee
For assets acquired by the assessee either by himself or in any manner specified after
01.04.1981 and after 01.04.1981 by previous owner:
Indexed cost of acquisition =
Actual cost to previous owner * Cost inflation index for the year

12. in which asset is transferred
___________________________________________________
Cost inflation index for the year in which asset is first acquired by the assessee
For assets acquired by the assessee either by himself or in any manner specified after
01.04.1981 and after 01.04.1981 by previous owner:
Indexed cost of acquisition =
Actual cost of acquisition to him * Cost inflation index for the year
in which asset is transferred
___________________________________________________
Cost inflation index for the year in which asset is first acquired by the assessee
Indexed Cost of Improvement:
Actual cost to acquisition * Cost inflation index for the year
in which asset is transferred
___________________________________________________
Cost inflation index for the year in which improvement took place
What is Bonus Share?
Bonus Shares or security is allotted to the assessee without any payment and it is allotted on the
basis of holding of any share or security, then the cost of acquisition of such share or security
allotted shall be taken as NIL.

13. What is Right Share?
Where by virtue of holding a share or security, the assessee becomes entitled to subscribe any
more additional share or security is known as right share. The cost of acquisition of Right Share
is the amount paid to the company or institution.
When are the Exemption applicable?
When gains from one house property is reinvested in another house property (Section 54):
Exemption is available on gains arising from the transfer of any residential house
property owned by the assessee, if the following conditions are satisfied:
The asset transferred must be long term capital asset
The assessee has:
Either purchased another residential house within one year before, or
within two years after the date of transfer
Or constructed a residential house within three years after the date of
transfer
The assessee does not transfer the new property within the period of three years
after its purchase or construction
Quantum of Exemption:
Amount invested in the property
The net capital gains arising from transfer of old property,
whichever is less.

14. When gains from asset other than a residential house property is reinvested in one house
property (Section 54F)
The conditions to be satisfied are as follows:
The assessee should be an individual or HUF
The asset transferred must be a long-term capital asset other than a residential
house
The assessee must:
Either purchased another residential house within one year before, or
within two years after the date of transfer
Or constructed a residential house within three years after the date of
transfer
The assessee does not transfer the new property within the period of three years
after its purchase or construction
The assessee should not acquire a second residential house by purchase within two
years, or by construction within three years, after the date of transfer
When gains from asset other than a residential house property is reinvested in one house
property (Section 54F):
Quantum of Exemption:

15. Where the cost of the house exceeds the net consideration vis a vis capital asset
transferred, entire capital gain will be exempt
Where the cost of the house is less than the net consideration of the asset
transferred, the exemption will be reduced proportionately
When gain from urban agricultural lands is reinvested in agricultural lands (Section 54B):
The conditions to be satisfied are as follows:
The lands sold should have been used for agricultural purposes
The assessee must purchase another land, and such land must be meant to be used
for agricultural purposes only
The purchase should be effected within a period of two years after the date of
transfer
The land so purchased should not be transferred by the assessee within the period
of three years following the purchase
Quantum of Exemption:
Amount invested in the property
The net capital gains arising from transfer of old property
whichever is less
Reinvestments in respect of transfers of long term capital assets effected on or after 1-4-
2000: [Section 54EC]
Conditions of exemption:

16. A long term capital asset is transferred by an assessee on or after 1-4-2000;
Within 6 months from the date of transfer, the assessee should invest the whole or
any part of capital gains in a „specified asset‟
The specified asset should not be transferred or converted into money within three
years of acquisition;
The cost of „specified asset‟ shall not qualify for deduction under section 80C.
Reinvestments in respect of transfers of long term capital assets effected on or after 1-4-
2000: [Section 54EC]
Then:
If the cost of specified asset is not less than the capital gain, then whole of the
capital gain is exempt;
If amount invested in specified asset is less than the capital gain then, the amount
of exemption is equal to sum invested in the specified asset.
However:
If the specified asset is transferred within 3 years of its purchase, the amount of
exemption will be deemed to be the income from long term capital gains.
Reinvestments of gains on transfer of securities in new issues: [Section 54ED]
Conditions of exemption:
A long term capital asset being securities is transferred by an assessee during
previous year 2002-03 (or any subsequent year);
Within 6 months from the date of transfer, the assessee should invest the whole or
any part of capital gains in a „Eligible issue of capital‟

17. The specified asset should not be transferred or converted into money within three
years of acquisition;
The cost of „specified asset‟ shall not qualify for deduction under section 80C.
Reinvestments of gains on transfer of securities in new issues: [Section 54ED]
Then:
If the cost of specified asset is not less than the capital gain, then whole of the
capital gain is exempt;
If amount invested in specified asset is less than the capital gain then, the amount
of exemption is equal to sum invested in the specified asset.
However:
If the specified asset is transferred within 3 years of its purchase, the amount of
exemption will be deemed to be the income from long term capital gains.
Exemption on compulsory acquisition of urban agricultural land [Section 10(37)]:
The conditions to be satisfied are as follows:
The assessee should be an individual or HUF
Land must be situated in urban area
During the period of two years immediately preceding the date of transfer, such
land was being used for agricultural purposes by the individual or a parent of his
or by HUF

18. Such transfer is by way of compulsory acquisition under any law
Such income has arisen from compensation or consideration for such transfer
received by an individual on or after 01-04-2004
Quantum of Exemption:
Full capital gain is exempt from tax
What is the Capital Gain on compulsory Acquisiton?
In case of compulsory acquisition of assets, the period for making investment in any specified
asset (residential house, etc.) shall be reckoned from the date of receipt of consideration and not
from the date of transfer.
What is meant by capital Losses?
Where net consideration received is less than the cost of acquisition then capital loss arises.
It may be treated as follows:
Short-term capital loss can be set off against capital gains either short term or long
term.
Loss arising from long-term capital asset will be allowed to be set off only against
long-term capital gain
Further, a long-term capital loss may be carried forward for 8 years to be set off
only against long-term capital gains

19. 3
Income from other sources
INCOME FROM OTHER SOURCES
Synopsis
1. INCOME FROM OTHER SOURCES 2. INCOME CHARGEABLE UNDER THE HEAD
INCOME FROM OTHER SOURCES
2.1 DIVIDEND INCOME
2.2 WINNING FROM LOTTERIES
2.3 EMPLOYEES' CONTRIBUTION TOWARDS FUND
2.4 INTEREST ON SECURITIES
2.5 RENTAL INCOME ON HIRING OF PLANT,MACHINERY OR FURNITURE
2.6 RENTAL INCOME FROM HIRING OF PLANT,MACHINERY OR FURNITURE
ALONG WITH BUILDING
2.7 KEYMAN INSURANCE POLICY
2.8 ANY AMOUNT / PROPERTY RECEIVED AS GIFT
3. DEDUCTIONS NOT ALLOWABLE
1. INCOME FROM OTHER SOURCES
Sec.56(1) of the Income-tax is the charging section under the heade “Income from Other
Sources”. Any income which is not exempt and which is not chargeable under any of the four
other heads, i.e., Salary,Income from House Property,Business Income and Capital Gains, will
be chargeable to tax under the head Income from other sources.
According to s.14, for the purposes of charge of income-tax and computation of total income, all
income shall be classified under any of the five heads prescribed in s.14. Various decisions of the
Supreme Court and the High Courts have held that the head “Income from Other Sources” is not
a residuary head. In the case of N. A. Mody, 61 ITR 428 (SC), the Supreme Court held that even
if a particular item of income enters the Total Income, it may not be taxable unless it falls under
a particular head of income because the computation of that income depends upon the particular
head of income. If it cannot be so brought to tax, it cannot be brought under the residual head
"Income from other sources" and it will escape taxation even if it be included in the total
income under section 4.
In D. P. Sandu Bros. Chembur (P.) Ltd., 273 ITR 1 (SC), the Court held that it would be
illogical and against the language of s.56 to hold that everything that is exempted from capital
gains by statute could be taxed as a casual or non-recurring receipt u/s.10(3) read with s.56.
2. INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES
2.1 DIVIDEND INCOME

20. Any amount declared by an Indian company as dividend is exempt in the hands of shareholders
since dividend distribution tax is paid by the company.
But deemed dividend u/s. 2(22)(e) is taxable in the hands of shareholders under this. Thus, any
loan or advance given by a private/ unlisted public company to shareholders who are beneficially
owning 10% or more of the capital or to concerns in which such shareholders own 20% would be
treated as a deemed dividend u/s. 2(22)(e). The Act provides that tax on such deemed dividend
would be payable by the shareholder and not by the company.
Further, dividend received from a foreign company is taxable in the hands of shareholders under
the head Income from other sources. Foreign dividend is not subject to dividend distribution tax
and hence, taxable in the hands of the shareholders. It is also subject to the provisions of the
Double Taxation Avoidance Agreement, if any, executed by India and that country.
In respect of dividend which is taxable under this head, any reasonable expenses paid by way of
commission or banker's expenses for realising the income.
2.2 WINNING FROM LOTTERIES
Any amount winning from lotteries,crossword puzzles,card games,races or other games such as
winning from television game shows or entertainment programme is chargeable under the head
Income from other sources.
No deduction is allowable for computing any income from such winnings. However, if the
assessee is an owner of race horses, then he is entitled to expenses incurred in relation to the
owning and maintaining race horses. In all other cases, the gross receipts are taxable.
2.3 EMPLOYEES' CONTRIBUTION TOWARDS FUND
If the employer receives any money from his employees towards Provident Fund or
Superannuation Fund or any other fund towards the welfare of its employees, then the same will
be taxable under the head Income from other sources if it is not taxable under business income.
Any sum credited by the assessee to the employee's account in the relevant fund, on or before the
date by which the employer is required to credit the employee's contribution under any Statute or
Order, would be allowed as a deduction to the employer.
2.4 INTEREST ON SECURITIES
Any Interest from securities, such as Bonds,Debentures, etc., is taxable under the head Income
from other sources if it is not taxable under business income. For instance, interest on debentures
received by a trader in such securities would be taxable as Business Income but interest received
by an Investor would be taxable under this head.
In respect of interest which is taxable under this head, any reasonable expenses paid by way of
commission or banker's expenses for realising the income.

21. 2.5 RENTAL INCOME ON HIRING OF PLANT,MACHINERY OR FURNITURE
Any income received as rent from hiring of Plant & Machinery or from furniture belonging to
the assessee will be taxable under the head Income from other sources if it is not taxable under
business income. For instance, a car rental company's income would be taxable as its business
income. However, if a person who has no need for a car rents out the same to his friends on
weekends, then the income for such idle-period letting would be taxable as Income from Other
Sources.
Deductions available against this income, include, repairs, insurance and depreciation on plant,
machinery, furniture, etc.
2.6 RENTAL INCOME FROM HIRING OF PLANT,MACHINERY OR FURNITURE ALONG WITH
BUILDING
Any income from letting out of building along with plant,machinery,furniture etc. which are
consolidated/inseparable from the building, will be taxable under the head Income from other
sources if it is not taxable under business income.
This provision has been the subject-matter of great litigation. Some of the important decisions
have been digested below:
If the letting of the building is inseparable from letting of the machinery, plant or
furniture, the income will be assessable as Income from Other Sources. In such a case,
the composite rent will not be split. Part of the rent cannot be assessed as Income from
House Property. [Sultan vs. CIT 51 ITR 353 (SC)].
However, if the common services are not charged for then the income would be taxable
as house property income – Shambhu Investments 263 ITR 143 (SC).
Entering into two agreements would not mean that part of the income would be
assessable under the head Income from house property and the other as income from
Other sources, as the transaction is single one and the consideration will be treated as
composite one ,the entire income will be assessable only as income from other
sources.[CIT v. Smt. P.Andal Ammal (2000) 243 ITR 715 (Mad)]
If there is no letting of the air-conditioning installation, then the provisions of section
56(2)(ii) do not apply - Bhaktawar Constructions, 162 ITR 452 (Bom).
Deductions available against this income, include, rent, rates, taxes on building and
repairs,insurance and depreciation on building, plant,machinery, furniture, etc.
2.7 KEYMAN INSURANCE POLICY
Any sum received under a Keyman Insurance Policy will be taxable under the head Income from
other sources if it is not taxable under salary or business income.
2.8 ANY AMOUNT / PROPERTY RECEIVED AS GIFT
Click here for more explanations on amount / property received as a gift.

22. 3. DEDUCTIONS NOT ALLOWABLE
The following expenses are not allowed as a deduction under this head:
Any expnese in the nature of a capital expenditure
Personal expenses of the assessee
Interest / Salaries payable abroad on which tax has not been deducted at source, if so
required
5
Income From Other Sources
All income other than income from salary, house property, business and profession or capital
gains is covered under „Income from other sources‟. Provisions in respect of some important
sources of „other income‟ are summarised below.
Dividends - Dividends on shares of domestic companies or units of UTI or mutual fund received
from a company on or after 1-4-2003 will not be taxable at the hands of the assessee [section
10(34) and 10(35)]. [The dividend distribution tax (DDT) will be payable by company/mutual
fund u/s 115-O] However, deemed dividend as defined in section 2(22) of Income Tax Act will
be considered as „income from other sources‟.
Winning from lotteries, races etc. - Winning from lotteries, card games, horse races are taxable
as other income. This is taxable @ 30.3% without claiming any allowance or expenditure.
Interest on securities, bank deposits and loans - Interest on bank deposits and loans is treated as
„other income‟, if not taxable u/s 28.
Gifts - Gifts in a year exceeding Rs 50,000, except gifts from certain relatives and gifts on
certain specified occasions will be taxable [section 56(2)(vi) of Income Tax Act]
Income from letting - Income from letting of furniture, machinery, plant and building which is
not separable fro, composite letting with machineries is taxable as other income. Current repairs,
insurance and depreciation are allowed as deductions [section 56(2)(ii) and (iii) of Income Tax
Act]
Royalty, Copyright fee, Family Pension etc. – amount received on account of Royalty,
Copyright fee or Family pension is taxable under “income from other sources”.
Allowable Deductions

23. In case of winnings from lotteries and races no deduction is allowable.
For family pension, the allowable deduction is 1/3rd of the pension or Rs. 15,000/- whichever is
lower.
For other cases, any revenue expenditure, exclusively incurred for earning such income is
allowed as deduction.
In case of income from hiring of machinery, depreciation on such machinery is also allowable as
deduction
6