Deductions Under Section 57 of the Income Tax Act

Understanding deductions under Section 57 of the Income Tax Act is important when you earn income that does not fall under salary or business income. This section applies to income taxed under the head Income from Other Sources. It allows specific expenses to be reduced from taxable income, which can lower the final tax liability.

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What Is Covered Under Section 57 of Income Tax?

Section 57 of income tax permits deductions only if the expense is directly linked to earning that income. These deductions are limited and clearly defined. Personal or capital expenses are not allowed, even if the income is taxable.

Key Deductions Allowed

One common deduction relates to dividend and interest income. Any reasonable commission or fee paid to collect such income can be claimed. However, only necessary expenses are permitted.

Another important deduction applies to employee welfare contributions. If an employer deposits the employee’s contribution to provident fund, superannuation fund, or ESI within the due date, the amount is allowed as a deduction when it is taxed as income.

Expenses related to rental income from plant, machinery, furniture, or buildings are also covered. Costs such as repairs, insurance, and depreciation can be deducted, subject to ownership conditions in the case of buildings.

Family Pension and Other Income

For family pension, Section 57 provides a standard deduction. One-third of the pension or ₹15,000, whichever is lower, is allowed. This reduces the taxable portion of the pension income.

Any other expense incurred wholly and exclusively to earn income from other sources may be claimed. However, this benefit is not available to foreign companies.

Interest on Dividend Income

After recent amendments, only interest on borrowed funds used for investment can be claimed against dividend income. The deduction is capped at 20% of the gross dividend received, and no other expense is allowed.

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Conclusion

Section 57 of income tax offers limited but useful deductions. When applied correctly, it helps taxpayers manage tax on passive income in a lawful and efficient manner.