Tag: Section 92

Management Notes

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

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Under Section 92(2)(l) of the Income-tax Act, 2025, certain sums received under a life insurance policy, including amounts allocated by way of bonus, are chargeable under the head “Income from Other Sources” where the receipt is not exempt under the applicable provisions. The taxability mainly depends upon the nature of the policy, premium payable, amount received and statutory exemption conditions. Where the prescribed exemption is available, the receipt remains exempt; otherwise, the taxable income is determined according to the Act.

1. Meaning of Sum Received under Life Insurance Policy

A sum received under a life insurance policy generally includes amounts received on maturity, surrender or other specified events, together with any bonus allocated under the policy. Section 92(2)(l) brings the taxable portion of such receipts under Income from Other Sources where the amount is not exempt under the relevant provisions of the Act. The entire amount received is not necessarily taxable because the law provides a specific computation mechanism for determining income. Further, amounts satisfying the prescribed life-insurance exemption conditions remain outside taxable income. Therefore, the nature of the policy and applicable statutory conditions must be examined before determining tax liability.

2. Taxability of Amount Received

The amount received under a life insurance policy becomes taxable under Section 92(2)(l) when the receipt does not qualify for exemption under the applicable provisions. Taxability may arise where the policy fails to satisfy prescribed conditions relating to the premium, sum assured, date of issue or other statutory requirements. In such cases, the taxable component is generally assessed under Income from Other Sources rather than treating the whole receipt automatically as taxable income. The amount included in income is determined according to the specific computation provisions of the Act. Thus, examination of the policy terms and availability of exemption is essential before calculating taxable income.

3. Amount Received on Death of Insured Person

A sum received under a life insurance policy on the death of the insured person is generally given favourable tax treatment, subject to the provisions and conditions contained in the Income-tax Act, 2025. Such death benefits are distinguished from ordinary maturity or surrender receipts because payment arises due to the insured person’s death. Where the applicable exemption conditions are satisfied, the amount received by the nominee or legal heir, including eligible bonus, is not included in taxable income. Consequently, Section 92(2)(l) principally becomes relevant to those life-insurance receipts that are not otherwise exempt and therefore require taxation under Income from Other Sources.

4. Bonus Received under the Policy

A life insurance policy may provide an additional amount in the form of a bonus along with the basic policy proceeds. For income-tax purposes, the bonus forms part of the amount received under the policy and its tax treatment generally follows the treatment applicable to the underlying insurance receipt. Where the policy proceeds satisfy the conditions for exemption, the qualifying bonus is also generally covered by that exemption. However, where the policy proceeds are taxable, the bonus is considered while determining the relevant receipt for tax purposes. Therefore, the taxability of bonus depends primarily upon whether the life insurance proceeds qualify for statutory exemption.

5. Computation of Taxable Income

Where a sum received under a life insurance policy is taxable, the income component is determined according to the specific computation rule applicable to such receipts. Broadly, the taxable amount is based on the sum received, including applicable bonus, after reducing the eligible premium or consideration paid for the policy to the extent permitted and not previously claimed as a deduction elsewhere. This approach seeks to tax the income element rather than simply treating every rupee of policy proceeds as income. The resulting amount is included under Income from Other Sources and becomes part of the assessee’s total income for the relevant tax year.

Management Notes

Interest on Securities [Sec. 92(2)(e)]

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Under Section 92(2)(e) of the Income-tax Act, 2025, interest on securities is chargeable under the head “Income from Other Sources” where it is not taxable as business income. It generally represents interest earned by an assessee from investments in Government securities, bonds, debentures and other interest-bearing securities. Such interest is included in taxable income according to the applicable provisions and method of accounting. The tax treatment depends upon the nature of security, ownership and character of investment.

1. Meaning of Interest on Securities

Interest on securities refers to interest income earned by an assessee from investments in specified securities issued by the Government, companies or other entities. It may include interest on Government securities, bonds, debentures and similar debt instruments. Where such securities are held as investments and the interest is not taxable under the head profits and gains of business or profession, the income is generally chargeable under “Income from Other Sources.” The amount taxable is determined according to the applicable provisions of the Income-tax Act, 2025. Thus, interest on securities constitutes an important category of investment income taxable in the hands of the recipient.

2. Government Securities

Interest received from Government securities represents income earned on securities issued by the Central Government, State Governments or other eligible governmental authorities. Such securities may carry a fixed or otherwise specified rate of interest payable periodically to the holder. Where the securities are held as investments, and the interest is not chargeable as business income, the amount is taxable under Income from Other Sources in accordance with Section 92(2)(e). The taxable amount is determined according to the applicable accounting and tax provisions. Government securities are generally regarded as debt instruments, and the interest earned by the holder constitutes taxable income unless specifically exempted.

3. Interest on Debentures

Debentures are debt instruments generally issued by companies or other entities for raising borrowed funds. The issuer pays interest to debenture holders at the rate and intervals specified in the terms of issue. Where an assessee holds debentures as an investment, the interest received or receivable is generally chargeable under the head Income from Other Sources, provided it is not taxable as business income. The taxable amount is determined according to the applicable provisions and the assessee’s recognised method of accounting. Interest on debentures is distinct from dividend because the holder is a creditor of the issuer, rather than an owner merely by holding debentures.

4. Interest on Bonds

Interest earned from bonds is another important form of interest income covered by the provisions relating to securities. Bonds may be issued by governments, companies, financial institutions or other authorised entities to raise borrowed funds. The bondholder normally receives interest according to the rate and payment terms attached to the instrument. Where bonds are held as investments, and the interest does not constitute business income, such interest is generally taxable under Income from Other Sources. The amount chargeable to tax depends upon the terms of the bond and applicable provisions. Any specific exemption or special treatment available under the Act is separately considered.

5. Basis of Taxability

Interest on securities is taxable according to the applicable provisions governing Income from Other Sources and the recognised method of accounting. Depending upon the circumstances, income may be considered on the basis of interest received or accrued during the relevant tax year. Where securities constitute stock-in-trade of a business, the interest may instead be taxable under profits and gains of business or profession. Therefore, the purpose and manner in which securities are held are important for determining the appropriate head of income. Any deduction specifically permitted in computing such income may be claimed, while expenditure not authorised by the Act remains inadmissible for tax purposes.

Computation of Interest on Securities [Section 92(2)(e)]:

Interest on securities taxable under Income from Other Sources may be computed as follows:

Particulars Amount (₹)
Gross Interest on Securities XXX
Add: Tax deducted at source, if interest is received net of tax XXX
Grossed-up Interest XXX
Less: Eligible deductions specifically allowable under the Act (XXX)
Taxable Interest on Securities XXX

illustration

Suppose an assessee earns ₹60,000 as gross interest on securities and eligible expenditure allowable under the Act is ₹5,000.

Particulars Amount (₹)
Gross Interest on Securities 60,000
Less: Eligible Deduction (5,000)
Taxable Interest on Securities 55,000

Therefore, ₹55,000 will be included under the head “Income from Other Sources”, assuming the stated ₹5,000 expenditure qualifies for deduction under the applicable provisions.

Management Notes

Family Pension- Gift [Sec. 92(2)(m)]

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Under Section 92(2)(m) of the Income-tax Act, 2025, specified receipts relating to family pension and gifts are chargeable under the head “Income from Other Sources”, subject to the applicable provisions. Family pension is generally an amount received by the legal heirs or family members of a deceased employee after the employee’s death and is taxable in the recipient’s hands, with the prescribed deduction available under the Act. Gifts, including specified sums of money or property received without or for inadequate consideration, may also become taxable where statutory conditions and thresholds are satisfied. However, prescribed relatives and specified circumstances may qualify for exemption.

1. Family Pension

Family pension means a regular amount received by the family members or legal heirs of a deceased employee after the employee’s death. It is generally taxable under the head “Income from Other Sources” because it is received by the family member and not by the employee who rendered the services. The recipient is entitled to a prescribed deduction from family pension while computing taxable income, subject to the conditions and limits specified under the Income-tax Act, 2025. The balance amount, after allowing the applicable deduction, is included in the recipient’s total income and taxed according to the applicable tax provisions.

2. Gift

A gift may consist of money, movable property or immovable property received by a person without consideration or for inadequate consideration. Under the Income-tax Act, 2025, specified gifts may be taxable under “Income from Other Sources” when the prescribed conditions and monetary thresholds are satisfied. The taxable amount depends upon whether the gift consists of money, movable property or immovable property and whether adequate consideration has been paid. However, gifts received from specified relatives or on prescribed occasions and circumstances, such as marriage, inheritance or under a will, may qualify for exemption. Thus, only specified taxable gifts are included in income.

Management Notes

Casual Income: Winning from Lotteries, Crossword Puzzles, etc. [Sec. 92(2)(b)]

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Under Section 92(2)(b) of the Income-tax Act, 2025, certain casual and windfall receipts are chargeable under the head “Income from Other Sources.” These include winnings from lotteries, crossword puzzles, races including horse races, card games, gambling, betting and other games of any sort. Such receipts arise mainly from chance, luck or competition rather than from regular employment, business or investment activities. The Act specifically brings these winnings within taxable income and provides special rules regarding their computation and taxation.

1. Winnings from Lotteries

Lottery winnings represent amounts received by a person on winning a lottery conducted through tickets, draws or similar schemes based substantially on chance. Under Section 92(2)(b), such winnings are taxable under Income from Other Sources. The entire taxable winning is included in the assessee’s total income according to the special provisions applicable to such receipts. Expenses incurred for purchasing lottery tickets or earning the winning are generally not deductible while computing taxable lottery income. Tax is imposed at the special rate prescribed by the Act, rather than the normal slab rate. Therefore, lottery winnings receive separate tax treatment because of their casual nature.

2. Winnings from Crossword Puzzles

Income received from winning a crossword puzzle is specifically included among taxable casual receipts under Section 92(2)(b). Such winnings may arise from competitions conducted through newspapers, magazines, digital platforms or other recognised modes. The winning amount is chargeable under Income from Other Sources, subject to the applicable provisions of the Act. No deduction is ordinarily permitted for expenses incurred in participating in or earning such winnings. Therefore, expenditure such as entry fees or related expenses cannot generally be reduced from the winning amount. The taxable amount is subject to the special tax treatment prescribed for such casual or windfall income under the Income-tax Act, 2025.

3. Winnings from Races including Horse Races

Winnings arising from races, including horse races, are covered within the specified casual receipts under Section 92(2)(b). Where an assessee receives prize money or winnings from such races, the amount is generally chargeable under the head Income from Other Sources. Such winnings are treated separately from ordinary business, salary or investment income. Expenses incurred for earning the winnings, including amounts spent on participation or betting, are generally not allowed as deductions against the taxable winning. The taxable amount is consequently determined without reducing such expenditure and is charged according to the special tax provisions applicable to winnings from races and similar activities.

4. Winnings from Card Games and Other Games

Section 92(2)(b) also covers winnings from card games and other games of any sort. The expression is broad and brings within taxation prize money and winnings from games falling within the statutory description. Such income is generally assessed under Income from Other Sources unless another specific provision applies. The taxable winning is determined without allowing ordinary deductions for expenses incurred in earning or participating in the game. Accordingly, entry charges and similar expenditure cannot normally be deducted from the winnings. These receipts are subject to the special tax treatment applicable to winnings, ensuring that casual gains from gaming activities are separately recognised for income-tax purposes.

5. Gambling and Betting Winnings

Amounts received from gambling or betting are also expressly covered by Section 92(2)(b). This includes taxable winnings arising from bets or wagers on events and other activities covered by the provision. Such winnings are generally chargeable under Income from Other Sources, irrespective of whether they are received occasionally or constitute a substantial receipt. Ordinary expenditure or losses incurred for earning a particular winning are generally not deductible from such income under the special computation rules. Consequently, the taxable amount is determined according to the provisions governing these specified winnings. Such income is then subjected to the special rate of tax prescribed under the Income-tax Act, 2025.

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