Tag: Chargeability Income

Section 92 of the Income-tax Act, 2025, falling under the head “Income from Other Sources”, embodies the residuary principle of taxation. It provides that income of every kind, not otherwise excluded from total income and not chargeable under any of the four specific heads listed in Section 13(a) to (d) — Salaries, House Property, PGBP, and Capital Gains shall be taxed under this head. This catch-all mechanism ensures no income escapes taxation merely for lacking a specific classification, while Section 92(2) further lists specific inclusions such as dividends, lottery winnings, and gifts, clarifying the head’s broad scope.

Scope and Applicability of Section 92:

1. General Residuary Rule [Sec. 92(1)]

Section 92(1) applies the residuary principle — any income not excluded from total income and not chargeable under Salaries, House Property, PGBP, or Capital Gains [Section 13(a)-(d)] is taxed under “Income from Other Sources”. This gives the head its catch-all scope, applicable to individuals, HUFs, firms, and other assessees alike, wherever a receipt does not naturally fit the four specific heads. Its applicability is therefore negative and residual in nature — determined by exclusion, not by any positive, exhaustive definition of what constitutes such income.

2. Passive Financial Receipts [Sec. 92(2)(a),(e)]

The section specifically applies to dividends and interest on securities, where such income is not chargeable under PGBP. This covers passive investment income earned by non-trading assessees, or by traders where the specific income falls outside their trading activity. These clauses ensure that investment-linked returns are consistently captured under this head, providing the primary charging mechanism for shareholders’ and investors’ passive earnings not otherwise falling within business computations.

3. Winnings and Speculative Receipts [Sec. 92(2)(b)]

Section 92 applies to winnings from lotteries, crossword puzzles, races, card games, and gambling or betting of any nature, including game shows and televised competitions. Such income is taxed under this head regardless of frequency or regularity, and attracts a special flat rate rather than slab rates, with no expenditure deduction permitted against it, reflecting the law’s distinct and stricter treatment of chance-based earnings compared to earned income.

4. Employee Contributions and Keyman Insurance [Sec. 92(2)(c),(d)]

The provision applies to sums received by an employer from employees as contributions toward provident, superannuation, ESI, or other welfare funds, where not chargeable as PGBP — typically where not credited on time to the relevant fund account. It similarly applies to sums received under a Keyman insurance policy, including bonus, where not taxable under PGBP or Salaries, ensuring such receipts do not escape taxation purely on classification technicalities.

5. Hire and Letting of Movable Assets [Sec. 92(2)(f),(g)]

Applicability extends to income from letting on hire of machinery, plant, or furniture, and to composite letting of such assets along with buildings where the two are inseparable, provided such income is not chargeable under PGBP. This typically applies to non-business owners renting out equipment, or composite arrangements where the letting is not part of the assessee’s regular trading activity, ensuring consistent tax treatment of asset-hire income outside business operations.

6. Forfeited Advances and Compensation Receipts [Sec. 92(2)(h)-(j)]

The section applies to forfeited advances received during failed negotiations for transferring a capital asset, interest on compensation or enhanced compensation under Section 278(1), and compensation received in connection with termination or modification of employment terms. These clauses capture incidental and compensatory receipts arising from failed transactions or altered contractual relationships, which do not naturally fall within any of the four primary heads of income.

7. Gifts and Deemed Receipts [Sec. 92(2)(m) r/w (3)]

The provision applies to any sum of money, immovable property, or specified movable property received without adequate consideration exceeding ₹50,000, taxing the entire value or the shortfall, as applicable. However, Section 92(3) excludes receipts from relatives, on marriage, under a will/inheritance, or from registered non-profits, ensuring the anti-abuse gift provision applies only to non-genuine or unrelated-party transfers, not ordinary family or exempted transactions.

Income Chargeable under the Relevant Head:

1. Family Pension

Family pension — a regular monthly amount paid by an employer to a family member of a deceased employee — is chargeable under “Income from Other Sources” rather than “Salaries,” since the recipient has no employer-employee relationship. Although not explicitly listed in Section 92(2), its taxability under this residuary head follows from Section 92(1). A standard deduction under Section 93(1)(d) is separately allowed — the lower of one-third of the pension or a prescribed cap (₹25,000 under the default new regime, ₹15,000 otherwise) — distinguishing it from ordinary pension, which remains taxable as salary.

2. Sum Received under a Life Insurance Policy [Sec. 92(2)(l)]

Any sum, including bonus, received under a life insurance policy — excluding unit-linked insurance policies and Keyman insurance receipts — is chargeable under this head where not exempt under Schedule II. The taxable amount is restricted to the sum exceeding aggregate premiums paid (not otherwise claimed as deduction), computed in the prescribed manner. This targets policies structured predominantly as investment vehicles rather than genuine risk cover, ensuring the investment-return component is taxed while true insurance payouts remain exempt.

3. Specified Sum from a Business Trust [Sec. 92(2)(k)]

Distributions received by a unit holder from a business trust (REIT/InvIT) during the tax year are chargeable under this head to the extent the specified sum formula — aggregate distributions minus issue price and amounts already taxed — yields a positive value. Distributions representing income already taxed at the trust level, or falling under Schedule V, are excluded from this computation, ensuring unit holders are taxed only on the capital-return component not previously subjected to tax at source.

4. Gift of Immovable Property [Sec. 92(2)(m)(ii)]

Immovable property received without consideration, where its stamp duty value exceeds ₹50,000, is taxable to the extent of that stamp duty value. Where received for inadequate consideration, the difference is taxable only if it exceeds the higher of ₹50,000 or 10% of consideration. Section 92(4) further allows the agreement-date stamp value to apply where payment was made via banking/online mode before registration, and permits reference to a Valuation Officer where the assessee disputes the value.

5. Gift of Movable Property [Sec. 92(2)(m)(iii)]

Specified movable properties — shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures, works of art, bullion, and virtual digital assets — received without consideration exceeding ₹50,000 in aggregate fair market value, or for inadequate consideration where the shortfall exceeds ₹50,000, are taxable to that extent. Section 92(3) exempts gifts from relatives, on marriage, under a will, or from registered non-profits, ensuring the provision targets non-genuine transfers rather than ordinary family gifting.

6. General Residuary Examples

Beyond the specifically enumerated clauses, Section 92(1)‘s residuary scope covers miscellaneous receipts not falling under any other head — such as income from sub-letting (by a non-owner tenant), examinership or remuneration for casual technical work unconnected with one’s profession, and agricultural income from a foreign country (since the agricultural-income exemption applies only to income derived in India). Such items are taxed under this head purely by process of elimination, confirming its function as the Act’s final catch-all provision.

Conditions for Chargeability of Income:

1. There Must Be “Income” in the First Place

The foremost condition for chargeability under Section 92 is that the receipt must qualify as “income” in the first place — a concept broadly understood to include regular, recurring receipts as well as casual and non-recurring ones, whether in cash or kind. Mere capital receipts, loans, or reimbursements of expenses generally do not constitute income unless specifically deemed so by the Act. Only once a receipt is characterised as income does the question of which head it falls under, and hence its chargeability, arise for consideration.

2. Such Income Must Not Be Specifically Exempt

Even where a receipt qualifies as income, it must not be excluded from total income under any exemption provision of the Act — such as those listed in Schedules II and III. Income specifically exempted (agricultural income earned in India, certain allowances, notified incomes) falls outside the scope of total income altogether, and therefore cannot be brought to tax under Section 92 or any other head. This condition operates as a threshold filter, applied before the residuary head’s applicability is even examined.

3. Income Must Not Be Chargeable Under the First Four Heads

Section 92(1) applies only where the income is not chargeable under Salaries, House Property, Profits and Gains of Business or Profession, or Capital Gains [Section 13(a) to (d)]. This is a negative test — the assessee (or Assessing Officer) must first examine whether the receipt naturally falls under any specific head; only upon exclusion from all four does the residuary head apply. This sequencing prevents overlap and ensures each receipt is taxed under its most appropriate, specifically-governed head wherever possible.

4. Income Need Not Arise from a Definite or Continuing Source

Unlike the other heads, chargeability under this head does not require that the income arise from a definite, continuing source — even a single, isolated, or windfall receipt (such as forfeited advances or casual winnings) can be taxed here. This flexibility distinguishes the residuary head from heads like “Salaries” or “House Property,” which presuppose an ongoing relationship or asset. It reflects the law’s intent to comprehensively tax all income-like receipts, however sporadic, that do not fit elsewhere.

Determination of Taxable Income:

1. Computing Gross Income Chargeable [Sec. 92]

The starting point is identifying gross income chargeable under this head — comprising both the residuary income under Section 92(1) and the specifically enumerated items under Section 92(2), such as dividends, winnings, gifts, and compensation receipts. Each item is quantified independently, based on its own valuation rules (fair market value for property gifts, stamp duty value for immovable property, actual sums for cash receipts). This aggregate forms the gross receipts figure before any permissible deductions under Section 93 are applied to arrive at net taxable income under the head.

2. Applying Permissible Deductions [Sec. 93]

From gross income, Section 93 allows specific deductions — collection charges for realising dividend/interest, expenses akin to repairs and depreciation for hired machinery/furniture income, a standard deduction for family pension (lower of one-third or ₹25,000/₹15,000), 50% flat deduction for interest on compensation, and full deduction for commuted pension or death gratuity. Additionally, any other revenue expenditure wholly and exclusively incurred for earning such income is deductible under clause (e), provided it is not capital in nature, mirroring the general PGBP deduction philosophy applied residually here.

3. Restrictions on Dividend and Mutual Fund Income [Sec. 93(2)]

Special restrictions apply to certain receipts: deemed dividend under Section 2(40)(f) permits no deduction whatsoever, while other dividend income and specified mutual fund/UTI unit income allow only interest expense, capped at 20% of such income included in total income for the year. This targeted restriction prevents assessees from claiming disproportionate borrowing costs against passive dividend receipts, ensuring the deduction bears a reasonable relationship to the income actually earned.

4. Statutorily Disallowed Amounts [Sec. 94]

Section 94 overrides Section 93 to disallow certain amounts absolutely — personal expenses, interest payable outside India without TDS compliance under Chapter XIX-B, and salary payments outside India without such compliance. Further, no deduction for any expenditure is allowed against lottery, gambling, or betting winnings (except for assessees maintaining race-horses as a business activity), reinforcing that such casual, chance-based income is taxed on a gross basis without any offsetting expense claim.

5. Arriving at Net Taxable Income under the Head

After deducting permissible expenses under Section 93 (subject to Section 93(2) restrictions) from gross receipts, and applying the absolute disallowances under Section 94, the resulting figure constitutes the assessee’s net income chargeable under “Income from Other Sources”. This net figure is then aggregated with income computed under the other four heads to determine the assessee’s Gross Total Income, forming the base for further Chapter VIII deductions and final tax computation.