HomeJAGRUK EMPLOYEESSource Of Income | Financial Advice To Earn More Money

Source Of Income | Financial Advice To Earn More Money

An average Indian citizen usually has just a single income source. Meanwhile, a wealthy person has multiple income sources, which is what makes him financially more successful. Generally speaking, all income sources fall under two categories – passive income and active income. Active income sources need one’s regular time and effort to generate results. On the other hand, Passive income sources need the dedication of time and effort one-time or not very often, to generate results. Some of these sources of income have a high rate of taxes levied on them while some have none. In this article, we will discuss eight such alternative income sources in details.

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8 Alternative Sources Of Income To Try:

1. Earned income

Also known as salaried income, one puts effort and time on this regularly. For instance, a company’s employees, managers, as well as CEO would fall under this, since they are all salaried employees. Furthermore, professionals like doctors, lawyers, CAs, etc., also fall into this category. Since, if they miss a day of work due to whatever reason, they would lose out on the salary for that particular day.

Most people have an earned salary as their first and primary income source. But the most important point to note is not to get stuck here! Do not make earned income your only source of income. We say this because if you earn money by trading your time, then there will always be a limit to how much you can earn since everyone has a limited number of hours to work. Hence, take careful note of the next seven points and start utilizing them to generate more income.

2. Transactional Source of income

This is probably the easiest, to begin with, and has the lowest investment. So whenever one procures a product or service at a low cost and then resells it at a higher cost, keeping one’s profit margin in mind, it is known as a transactional income source. For example, a property dealer who sells land at a higher margin and earns a commission on it. Or a wholesaler who buys in bulk at a lower cost from production and sells to retailers at a higher cost. These were examples of products. Likewise, in services, we have the Paytm app which earns a small commission every time a transaction is completed through their app. Or BookMyShow, which earns a small commission every time a booking is made through their website/app.

Transactional income can also be either Passive or Active in nature. If one is self-manufacturing the product/service and then selling it, it is an active source. Example, you create an art piece and sell it, which limits your growth since you have to do each task yourself. But if you tie-up with a manufacturer and resell their product, earning a profit on each sale, then that gives you an edge where you have the possibility of scaling up your profit. This would be a passive transactional income source. This would also be great via a digital platform such as the Meesho app. You can learn all about it via this video and this blog.

If this income is at a personal level, then it falls under the “other sources” category for a tax deduction. It will be taxed similarly to how your salary is. But if you create a business/corporation/partnership firm and have this transaction under it, then you will receive tax exemptions. You can file a return for your expenses and only get tax deductions on your profits.

source of income

3. Interest income

This would require one to invest their money into banks, companies or government schemes to receive an interest in it. This income source will also give you a tax exemption. If you have a savings account under a bank/corporate/post-office, then according to income tax act section 80TTA, you get an exemption for up to Rs 10,000. If you invest in PPF then you receive an exemption for up to Rs 1.5 lakhs. Senior citizens get exemptions for up to Rs 50,000. Meanwhile, earned income accrue the maximum amount of tax on it, which can go up to 30-35% in the country.

4. Dividend income

If you are a partner/shareholder in a company, and the company earns profits which it shares with you, then it is known as dividend and this is called dividend income. This does not require a huge investment sum. Even if you purchase equity shares in listed companies, then you will receive some dividends from it each year. This income source also has a tax exemption for up to Rs 10 lakhs. Thereafter, a 10% tax is levied above Rs 10 lakh. Dividends from mutual funds also receive tax exemption under Income Tax Section 10(35).

5. Rental income

Income from renting out of any space/equipment/vehicle/real estate would account as a rental income. You need to ensure that your investment for this is Cash Positive. For instance, if you have taken a real estate or equipment on loan then it’s monthly EMI and maintenance cost should be coming out of your rental income.

Example, you have bought a home which has a monthly EMI of Rs 10,000, plus Rs 2000 maintenance cost for society, making your cost Rs 12,000 per month. You receive Rs 10,000 per month from renting out this place. This makes your rental income Cash Negative because you are incurring a loss on it. Instead, if you were receiving Rs 15,000 per month from it, then it would make you a profit and be a Cash Positive income source.

Usually, commercial properties have higher rentals and higher returns. Equipment rental is also a great option which does not need a huge investment. This can include lighting, musical instruments, construction equipment, etc.

6. Royalty income

Creating something once, such as a movie/video/photograph/music/novel, which will be used repeatedly by other people, earns you a royalty on it. Example, if an author writes a book, then every time that book sells via Kindle or offline shop, earns him a royalty income on it. If the book is franchised into a movie or merchandise, then that also brings the author royalty income.

7. Capital gain income

If one invests in an asset like real estate or stocks, whose monetary value increases with time, then the increase in the value is known as a capital gain. Example, you purchase a piece of land at Rs 10 lakh. After 3 years its value becomes Rs 13 lakhs. Then this Rs 3 lakh difference will be your capital gain. Similar capital gain is seen in the share market when buying stocks.

Capital gain can be long term capital gain or short term capital gain. Long term capital gain does not attract a lot of tax in India. Shares being held for over a year attract 10% tax.

8. Recurring income

If you acquire a service/customer once then you receive a commission on it regularly. Example, if a LIC agent sells a LIC policy to a customer once, then he receives a commission for as long as that customer’s policy is valid. This is also possible via a subscription format for a gym membership or parlour services or restaurant or app usage. Example, Netflix, wherein you have to pay a monthly fee regardless of whether you are using it or not.

Watch our video on this topic:

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