What Is Passive Income? Understanding the Sources and Taxation in India

Passive income is very important. But if you are willing to start a passive income, then you must understand the role of taxation and also the sources from which we earn the passive income.

If you are earning passive income or willing to earn or start, then you must understand the taxation in India. It is very crucial and has many benefits. If you want to earn from passive income, then first learn about the income sources and then understand the taxation which is important while filing the ITRs.

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1) India’s Sources of Passive Income

Real Estate: Income from rented properties (Flat, Villa, Commercial Premises etc.).

Investments: Investments include dividends from stocks, interest from FDs/bonds/P2P lending, returns from mutual funds (SIPs), REITs, and Sovereign Gold Bonds (SGBs).

Government Schemes: Post Office Monthly Income Scheme (POMIS) for Guaranteed Returns is one of the government programs.

Digital Assets: Royalties from books or music or revenue from online courses or automated online enterprises.

Business: Profits from a company whose day-to-day operations are run by a manager are considered business ownership.

2) Taxation 

Interest Income: Taxed as Income from Other Sources (IFOS) for interest income.

Income from Rent: Subject to Income from House Property, which permits deductions for property taxes, maintenance and interest on house loans.

Dividends: Historically, dividends were subject to a Dividend Distribution Tax (DDT), but they are now included in taxable income at your slab rate.

Capital Gains: Taxes are levied separately (either short-term or long-term) when you sell assets such as property or equities.

P2P Lending: Interest income from peer-to-peer lending is subject to taxation under IFOS.