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Income from Other Sources in India: How It Is Taxed Under the Income Tax Act 2025
The Income Tax Act 2025 groups all income into five heads. If an income does not fit salary, house property, business profits, or capital gains, it falls under Income from Other Sources — defined by Section 56 of the Act. Bank interest, dividends, and rental income from movable property all land here.
What counts as Income from Other Sources?
Section 56(1) of the Income Tax Act 2025 lists the main categories:
- Interest from savings accounts, fixed deposits, recurring deposits, bonds, and debentures
- Dividends from shares, mutual funds, and equity-oriented schemes
- Rental income from movable property — such as a camera, car, furniture, or machinery rented out
- ** Winnings** from lotteries, crossword puzzles, horse races, card games, and other games of chance
- Family pension — a regular payment a family receives after a pension-holding family member passes away
- Any other income that does not fit salary, house property, business, or capital gains
The key rule is simple: if the Income Tax Act does not put it in one of the other four heads, it goes here.
The standard deduction under Section 57
Section 57 of the Income Tax Act 2025 allows specific deductions from this income head. The most important one is the standard deduction of up to ₹5,000 under Section 57(iia):
| Income type | Standard deduction |
|---|---|
| Interest income (savings/bank accounts) | Up to ₹5,000 (Rule 7A of the Income-tax Rules 2026) |
| Dividends | Actual expense incurred to earn the dividend, or ₹5,000 whichever is lower |
| Rental from movable property | Actual expenses incurred to earn the rental |
| Family pension | Up to ₹15,000 or one-third of the pension, whichever is lower |
| Other income | Expenses wholly and exclusively incurred to earn that income |
Note: the standard deduction of ₹5,000 for interest income is available only when the gross interest income does not exceed ₹5,000. If interest income exceeds ₹5,000, no standard deduction is allowed under this provision.
How bank interest is taxed
Bank interest is one of the most common examples of Income from Other Sources. Here is how it works.
Savings account interest
Interest earned on a savings account is fully taxable. For example, if you earn ₹8,000 in savings account interest in a financial year, the entire ₹8,000 is added to your total income and taxed at your slab rate.
Key point: The bank does not deduct TDS on savings account interest (unlike fixed deposit interest, which may attract TDS under Section 194A if interest exceeds ₹40,000 per year).
Fixed deposit interest
Interest from fixed deposits is taxable at your slab rate. The bank deducts TDS if the interest exceeds ₹40,000 in a year (for individuals and HUFs below 60). You receive Form 16A showing the TDS amount, which you claim as credit when filing your ITR.
Important: If your total income is below the taxable slab, you can submit Form 15G (for individuals below 60) or Form 15H (for senior citizens) to the bank to avoid TDS deduction.
How dividends are taxed
Dividends from shares and mutual funds are taxed under Income from Other Sources, but the rate and mechanism depend on how you receive them.
Dividends from Indian companies
The company paying the dividend deducts TDS at 10% under Section 194K (if the dividend exceeds ₹5,000 in a year for resident shareholders). You receive the net amount after TDS and claim the credit in your ITR.
When dividends exceed your slab threshold
If your total taxable income (including dividends) exceeds the basic exemption limit, the dividends are taxed at your slab rate. For example, if you are in the 20% slab and receive ₹1,00,000 in dividends, you pay 20% on that ₹1,00,000 minus the TDS already deducted.
Rental from movable property
If you own a camera, a car, a laptop, or any piece of equipment and rent it out, the rental income is taxable under this head. You can deduct the actual expenses you incur to earn that rental — such as repair costs, insurance, and depreciation on the asset.
For example, if you rent out your camera for ₹30,000 a year and spend ₹5,000 on repairs, your net taxable income from that rental is ₹25,000.
Note: if you rent out immovable property (a house or a piece of land), that income goes under the house property head, not here.
Winnings — special taxing rules
Winnings from lotteries, races, card games, and crossword puzzles are taxed at a flat 30% under Section 115BB of the Income Tax Act 2025, without any exemption or deduction. No cost of winning is allowed as a deduction.
If you win a prize of ₹1,00,000 in a lottery, the tax deducted at source is ₹30,000, and the net amount you receive is ₹70,000.
Note: GST of 28% is also charged on lottery winnings and betting. The combined tax burden on lottery winnings can be significant.
Family pension
Family pension received after the death of a pension-holding family member is taxed under this head. The deduction is the lower of:
- ₹15,000 per year, or
- One-third of the total family pension received
For example, if you receive ₹60,000 per year as family pension, the deduction is ₹15,000, and your taxable income from this source is ₹45,000.
Interaction with the new tax regime
Under the new tax regime (Section 202 of the Income Tax Act 2025, default from FY 2026-27), Income from Other Sources is added to your total taxable income and taxed at the applicable slab rates. The standard deductions under Section 57 still apply.
Unlike the old regime, no separate exemption or deduction is available for specific types of other-source income under the new regime — the slab structure applies uniformly.
Worked examples
Example 1: Interest income from savings and fixed deposits
Meera is a salaried employee in Pune with a basic salary of ₹8,00,000 per year. She also has:
- Savings account interest: ₹12,000
- Fixed deposit interest: ₹25,000
Total income calculation:
| Income head | Amount |
|---|---|
| Salary (after standard deduction) | ₹7,87,800 |
| Interest from savings account | ₹12,000 |
| Interest from fixed deposit | ₹25,000 |
| Gross total income | ₹8,24,800 |
Tax under new regime (Section 202):
- Up to ₹4,00,000: nil
- ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹8,24,800: 10% of ₹24,800 = ₹2,480
- Total tax: ₹22,480 + 4% cess = ₹23,379
Example 2: Dividend income
Rahul holds equity mutual fund units. He received dividends of ₹50,000 during FY 2026-27. The fund house deducted TDS of ₹5,000 (10% under Section 194K). His salary income is ₹10,00,000.
Total income calculation:
| Income head | Amount |
|---|---|
| Salary | ₹10,00,000 |
| Dividends (gross) | ₹50,000 |
| Gross total income | ₹10,50,000 |
Tax under new regime:
- Up to ₹4,00,000: nil
- ₹4,00,001 to ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹10,50,000: 10% of ₹2,50,000 = ₹25,000
- Total tax: ₹45,000 + 4% cess = ₹46,800
Note: TDS of ₹5,000 is claimed as credit. Rahul needs to declare the gross dividend of ₹50,000 in his ITR and claim the TDS credit.
Common mistakes to avoid
Treating savings interest as tax-free: Many taxpayers assume bank savings interest is not taxable. It is. It must be declared in your ITR under Income from Other Sources.
Forgetting to claim TDS credit: If TDS was deducted on fixed deposit interest or dividends, you must claim it in your ITR. Failing to declare the gross income and claim TDS credit leads to mismatches and notices.
Not submitting Form 15G/15H: If your total income is below the exemption limit but you earn FD interest above ₹40,000, submit Form 15G/15H to the bank to avoid TDS — otherwise the bank deducts tax and you must claim it back via ITR.
Confusing movable and immovable property rental: Rental from a car or equipment goes here. Rental from a house or land goes under house property income. Mixing them up leads to wrong tax calculation.
Assuming lottery winnings are net: If you win ₹1,00,000, the payer deducts 30% TDS upfront. The ₹70,000 you receive is not your full win — the government has already taken ₹30,000.
Frequently asked questions
Is savings account interest fully taxable in India?
Yes. Interest earned on any savings bank account is fully taxable under Income from Other Sources. It does not matter if the amount is small — it must be declared in your ITR. No exemption is available for savings account interest under the Income Tax Act 2025.
Do I need to pay tax on dividends from mutual funds?
Yes. Dividends from equity mutual funds are taxed under Income from Other Sources. The fund house deducts TDS at 10% if dividends exceed ₹5,000 in a year. The gross dividend must be declared in your ITR and the TDS is claimed as credit. If your total income is below the basic exemption slab, no tax is payable on the dividend itself.
What is the maximum standard deduction for other-source income?
The standard deduction for savings account interest is up to ₹5,000 under Rule 7A of the Income-tax Rules 2026, available only when the gross interest does not exceed ₹5,000. For dividends, it is the lower of ₹5,000 or actual expenses. For family pension, it is the lower of ₹15,000 or one-third of the pension amount.
How is lottery winning taxed in India?
Lottery winnings are taxed at a flat 30% under Section 115BB of the Income Tax Act 2025. No deductions or exemptions are allowed from the winning amount. GST of 28% is also charged separately on the gross lottery prize.
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Sources
- Section 56, Income Tax Act 2025 (Income from other sources — definition)
- Section 57, Income Tax Act 2025 (Deductions from Income from Other Sources)
- Section 115BB, Income Tax Act 2025 (Winnings from games and puzzles — 30% tax)
- Section 194K, Income Tax Act 2025 (TDS on dividend income)
- Section 194A, Income Tax Act 2025 (TDS on interest other than interest on securities)
- Section 202, Income Tax Act 2025 (New tax regime slabs)
- Rule 7A, Income-tax Rules 2026 (Standard deduction on savings bank interest)
- Form 15G / Form 15H (TDS exemption declarations for individuals and senior citizens)
Data verified: 8 October 2026