Deductions Allowed from “Income from Other Sources” [Section 57]

Income from Other Sources, Tax Ready Reckoner

Section 57 of the Income Tax Act, 1961, permits specific deductions while computing taxable income under the head “Income from Other Sources.” Unlike business income, deductions are limited and strictly defined.

Table of Contents

1. Deductions Allowed Under Section 57

NATURE OF INCOME	DEDUCTION ALLOWED	CONDITIONS
Dividend Income (from non-exempt sources)	Interest expense (up to 20% of dividend income) [Sec 57(iii)]	Must be incurred to earn dividends (e.g., loan interest for investments)
Interest on Securities (bonds, debentures)	Collection charges (bank fees) + Interest expense (if borrowed to invest) [Sec 57(i)]	Must be directly linked to earning interest
Family Pension	Standard deduction: Lower of ₹15,000 (₹25,000 under new tax regime) or 1/3rd of pension [Sec 57(iia)]	Only for legal heirs of deceased employees
Rental Income (Machinery/Plant/Furniture)	Depreciation (Sec 32) + Repairs & Insurance [Sec 57(ii)]	Must not be part of business income
Interest on Compensation/Enhanced Compensation	50% deduction (no need for actual expenses) [Sec 57(iv)]	Only for interest received on land acquisition awards

2. Key Restrictions (Non-Deductible Expenses)

Personal expenses(e.g., travel, entertainment).
Capital expenditures(e.g., cost of purchasing assets).
Wealth tax, penalties, or fines(Section 58 overrides Section 57).
Expenses related to lottery/gambling winnings(Section 58(4)).

3. Practical Examples

Dividend Income (₹1,00,000) with Interest Expense (₹25,000)
- Deduction: 20% of ₹1,00,000 = ₹20,000(even if actual interest is ₹25,000).
- Taxable Income: ₹80,000.
Family Pension (₹90,000/year)
- Deduction: Lower of ₹25,000 or ₹30,000 (1/3rd of ₹90,000) → ₹25,000.
- Taxable Income: ₹65,000.

4. Compliance & Reporting

Disclose in ITR: Under Schedule OS(Income from Other Sources).
Maintain Proofs: Interest certificates, rent agreements, pension receipts.