Income from Investment

INCOME FROM INVESTMENTS
Holding of property that is neither for one’s personal use nor for business is said to be an investment.  The Income Tax Act enumerates the receipts or receivables to be included in one’s income from investments as follows:

1.1.    Dividend
Dividend is a payment made by an entity to its beneficiaries in consideration of capital employed by them. Dividend is paid out of the current year’s profit or from the retained earnings. Distribution of profit is the phrase used for dividend in the Act. Accordingly, he below are treated as dividend:
•    A payment made by an entity to any of its beneficiaries in any capacity or
•    Capitalization of income. i.e. distribution of bonus shares
Tax is levied on dividend paid by a company to its shareholders and partnership to its partner but the dividend paid by other entities is exempt from tax. Dividend paid by a resident company or partnership is subject to 5% final withholding tax. The dividend is the final tax and the beneficiary does not have to include the dividend amount in his taxable income from investment. 

1.2.    Interest
Interest is a consideration received for investment of cash in the shape of a bank or financial institutions, loan to a person or investments in Bonds and debentures. The rate of interest, interest payable period and maturity of the loan or deposit are generally fixed at the time of investment. Interest received during the year on such investment is included in the income from investment of the person. 
 
1.3.    Payment for natural resources
Royalty payable for a right to take out minerals or any amount paid for taking out materials from land is included in the income from investments. 
 
1.4.    Rent
Rent means rent of tangible assets including house rent and all payments including premium paid under a lease of a tangible assets. However, rent does not include natural resource payment and amount received as house rent by a natural person except sole proprietorship firm. 
 
1.5.    Royalty 
Royalty is the payment received in consideration of leasing an intangible assets such as right to use a copyright, patent design, model, and plan, secret formula or process or trademark, supply of some knowhow, cinematography film, video tape, sound recording etc. 
 
1.6.    Gain from Investment Insurance
It is calculated by subtracting a sum of premium paid in relation to the policy from the amount received from the policy. 

1.7.    Gain of a Beneficiary while receiving payment from unapproved retirement fund
Gain is calculated as the payment from the unapproved retirement fund less the accumulated contribution up to employment termination by the beneficiary. 

1.8.    Amount on Investments in an approved retirement fund
Gain is calculated as actual payment from approved retirement fund less higher of the Rs. 500,000 or 50% of Payment amount. 

1.9.    Net Gain from Disposal of non-business chargeable assets
Such gain or loss is calculated by subtracting cumulative outgoing for the asset from the cumulative incoming from the asset. 

1.10.  Balancing Charge from disposal of depreciable asset of investment
In the cases, when a person disposes off depreciable assets owned by it and used for investment purpose and if a gain is derived when calculating in accordance with Schedule 2 of Income Tax Act, then such gain is included within the income from investment of the person for the year. 
 
1.11.  Gift received by the person in respect of the investment 
The gift received in cash or kind (in case of kind – the market value of the gift) is included in the income from investment. 

1.12.  Retirement payments
Any retirement payments received by the individual from any retirement fund is included in income from investment. 

1.13.  Amount received in compensation of accepting any restrictions
Any amount received in compensation of accepting any restrictions in relation to the investment is included in income from investments. 

1.14.  Other amounts to be included in the income from investments are:
•    Gain from Exchange Fluctuations
•    Recovery of Bad-debts
•    Indirect advantages from associated person 
•    Compensation received
•    Distribution of profit otherwise than out of profit
•    Amount not included in taxable income from investments
•    Allowable expenses in computing Net Income from Investment 
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