Section 56 of Income Tax Act works as the catch-all head: any income that is not salary, house property, business or profession, or capital gains is taxed under it as income from other sources. Interest, dividends, family pension, lottery wins and taxable gifts all land here.
Every rupee you earn must be placed under one of five heads before tax is worked out, because each head has its own deductions and rules. This page walks through the five heads for FY 2025-26 under the 1961 Act, then section 56, then clubbing under section 64. For the deductions you take after adding up the heads, see the deductions list.
Quick facts
Total heads of income
Five (section 14)Residual head
Income from other sources, sections 56 to 59PGBP full form
Profits and Gains of Business or ProfessionLottery and game winnings
Flat 30% plus surcharge and cess, no deductionsFamily pension deduction
One third or ₹15,000 old regime; ₹25,000 new regimeClubbing
Sections 60 to 64; spouse, minor child, daughter-in-law casesUnder the 2025 Act
Same five heads; other sources charged in section 92
The 5 heads of income tax at a glance
| Head | Sections | Typical examples | Main relief |
|---|---|---|---|
| Salaries | 15 to 17 | Basic pay, allowances, perquisites, pension from an employer | Standard deduction ₹75,000 new regime, ₹50,000 old |
| Income from house property | 22 to 27 | Rent from a flat or shop, deemed rent on a second house | 30% standard deduction, home loan interest |
| Profits and gains from business or profession (PGBP) | 28 to 44DB | Shop profit, consulting fees, freelance income | Business expenses, depreciation, presumptive schemes |
| Capital gains | 45 to 55A | Sale of shares, mutual funds, land, gold | Exemptions under 54 and 54F, special rates |
| Income from other sources | 56 to 59 | Interest, dividends, family pension, gifts, lottery | Expenses under section 57 |
Salary rules are explained on the section 17 page. PGBP in income tax covers both trading and professional work, so a dentist and a grocer report under the same head.
What section 56 of Income Tax Act brings to tax
- Interest on savings accounts, fixed deposits, bonds and income tax refunds.
- Dividends from shares and mutual funds, taxed at slab rates in the holder's hands.
- Family pension received by the family of a deceased employee.
- Gifts above ₹50,000 from non-relatives under section 56(2)(x); details on the gift tax page.
- Lottery, crossword, game show and betting winnings, taxed at 30% under section 115BB.
- Interest on enhanced compensation, such as on compulsory land acquisition, with 50% allowed as a deduction.
- Rent from letting out machinery or furniture when it is not your business.
Section 57 allows a few expenses against this income: interest paid on money borrowed to buy shares, capped at 20% of the dividend; the family pension deduction; and fees paid to a bank to collect income. Section 58 blocks personal expenses and any deduction against lottery income.
Income from other sources in income tax: a worked example
Facts. Neha, a salaried manager under the new regime in FY 2025-26, has a gross salary of ₹14,00,000. She also earns ₹12,000 savings interest, ₹60,000 FD interest and ₹25,000 dividends, and a friend gives her ₹70,000 for her birthday.
Salary head. ₹14,00,000 less ₹75,000 standard deduction = ₹13,25,000.
Other sources head. ₹12,000 + ₹60,000 + ₹25,000 + ₹70,000 = ₹1,67,000. The gift crosses ₹50,000 and comes from a non-relative, so all ₹70,000 is taxed.
Total income. Adding ₹13,25,000 and ₹1,67,000 gives ₹14,92,000.
Tax. The 4 to 8 lakh slab at 5% gives ₹20,000, the 8 to 12 lakh slab at 10% gives ₹40,000, and the remaining ₹2,92,000 at 15% gives ₹43,800. Total ₹1,03,800. Add 4% cess of ₹4,152 and the tax comes to ₹1,07,952. No rebate applies, since income is above ₹12 lakh.
Notice that the new regime gives no 80TTA relief on savings interest, so every rupee of interest is added.
Clubbing of income in income tax: section 64
Clubbing stops families from splitting income just to use lower slabs. The income is taxed in the hands of the person who arranged it, even though someone else receives it.
| Situation | Whose income it becomes |
|---|---|
| Spouse earns salary from a firm where the other spouse has a substantial interest, without matching qualifications | Spouse with the larger income |
| You gift money or an asset to your spouse without adequate payment, and it earns income | You |
| You gift an asset to your son's wife and it earns income | You |
| A minor child earns interest or dividends | The parent with the higher income, with ₹1,500 exempt per child |
| You transfer income but keep the asset | You |
A minor's income from manual work or a skill, such as acting, is not clubbed. Neither is income of a minor with a specified disability. Income earned on the clubbed income itself is the recipient's own.
Which return form and schedule each head goes into
Salary, one house property and other sources income can go in ITR-1 for a resident whose total income is within ₹50 lakh. Capital gains usually call for ITR-2. Income from a business or profession goes in ITR-3, or in ITR-4 under a presumptive scheme. Interest and dividends appear in the AIS, so match them before filing. The ITR form guide sets out the full choice.
Heads of income under the 2025 Act
| Feature | FY 2025-26 income | Tax year 2026-27 income |
|---|---|---|
| Number of heads | Five | Five, same names |
| Residual head | Section 56 | Section 92 |
| Gift rule | Section 56(2)(x) | Within section 92 |
| Year label | Previous year with a matching assessment year | Tax year only |
The substance carries over. For income earned from 1 April 2026, what changes is just the section numbering and the year label.
Where people put income under the wrong head
| Error | Correct treatment |
|---|---|
| Showing FD interest as salary or ignoring it | Report it under other sources, matched to the AIS |
| Treating a large gift from a friend as exempt | Above ₹50,000 in the year, the whole amount is taxable |
| Claiming the basic exemption against lottery winnings | Lottery is taxed at 30% from the first rupee |
| Reporting a child's FD interest in the child's own return | Club it with the parent who earns more |
This explanation of the heads of income is general guidance only. The law is amended often, so before relying on it, get a chartered accountant's view or read the department's latest notifications.
Sources we checked
- Income-tax Act, 1961, section 14
- Income-tax Act, 1961, sections 56 to 59
- Income-tax Act, 1961, section 64
- Income-tax Act, 2025, section 92
Frequently asked questions
What is the total no of heads of income under income tax?
There are five: salaries, income from house property, profits and gains from business or profession, capital gains, and income from other sources. The 2025 Act keeps the same five.
What income falls under section 56 of Income Tax Act?
It taxes income that does not fit any other head, such as interest, dividends, family pension, lottery winnings and gifts above ₹50,000 from non-relatives.
What is the PGBP full form in income tax?
PGBP is short for profits and gains of a business or profession. It is the head for income from trade, manufacturing, freelancing and professions like law or medicine.
How is income clubbed under section 64 of Income Tax Act?
Clubbing mainly happens here. Section 64 adds certain income of your spouse, minor child or son's wife to your own income, such as earnings on assets you gifted to them.
Is savings bank interest taxed under income from other sources?
Yes. In the old regime, section 80TTA allows up to ₹10,000 against it for most people. The new regime gives no such deduction.