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Deductions under Section 57 – Allowable Expenses from Other Sources

Earned ₹2 lakh dividend - full ₹2L taxable? Family pension ₹60,000 - all taxable? Not always! Section 57 provides 3 key deductions from "Other Sources" income. Let's maximize your savings!

Section 57 - Deductions from Other Sources

Three main deductions:

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Rule: Only specific deductions allowed (unlike business expenses)

Section 57(i) - Commission for Dividend/Interest

Deduction: Commission/remuneration paid to realize dividend or interest

Example:

Paid ₹5,000 to agent to collect dividend from company

  • Dividend received: ₹50,000
  • Deduction: ₹5,000
  • Taxable income: ₹45,000

Rare in practice: Most dividends auto-credited to bank

Section 57(ii) - Collection Charges for Interest

Deduction: Expenses for recovering interest

Example:

Bank FD interest:

  • Interest: ₹1,20,000
  • Bank charges for premature withdrawal: ₹2,000
  • Deduction: ₹2,000
  • Net taxable: ₹1,18,000

Another example:

Lawyer fees to recover interest from defaulter:

  • Interest recovered: ₹80,000
  • Legal fees: ₹10,000
  • Deduction: ₹10,000
  • Taxable: ₹70,000

Section 57(iia) - Family Pension

Most important and commonly used!

Family pension: Pension received by family members after death of employee/pensioner

Deduction: 1/3rd of pension OR ₹15,000 (whichever is LESS)

Formula:

Deduction = Lower of:
1. 1/3rd of family pension received
2. ₹15,000

Examples:

Example 1 - Family Pension ₹60,000

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Example 2 - Family Pension ₹40,000

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Rule: If pension ≤ ₹45,000 → Deduction = 1/3rd If pension > ₹45,000 → Deduction = ₹15,000 (limit)

Example 3 - Family Pension ₹2,00,000

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Family Pension vs Pension

Key difference:

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Example:

Retired govt employee: Pension ₹80,000/year

  • Head: Salary
  • Deduction: ₹50,000 standard (old regime)
  • Taxable: ₹30,000

Widow of govt employee: Family pension ₹80,000/year

  • Head: Other Sources
  • Deduction: ₹15,000 (Section 57(iia))
  • Taxable: ₹65,000

Section 57(iii) - Plant/Machinery Rental

Deduction: For letting of plant, machinery, or furniture

Two components:

A. Standard Deduction: 30% of rental income

B. Actual Expenses: Repairs, insurance

Choose: 30% OR Actual (whichever beneficial)

Usually: 30% chosen (no proof needed!)

Example:

Factory machinery rented out:

  • Rent received: ₹5,00,000/year
  • Actual repairs: ₹80,000

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If chosen actual: ₹5L - ₹80k = ₹4.2L taxable (higher tax!)

30% better!

What is NOT Deductible?

X Normal collection of salary - no deduction

X Expenses for earning dividend (buying shares) - capital expense

X Personal expenses - never deductible

X Interest on loan to buy shares (for dividend) - not deductible under Section 57

✅ Only specific Section 57 deductions allowed

Practical Complete Example

Mrs. Sharma's Other Sources Income (FY 2024-25):

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Added to Gross Total Income: ₹3,53,000

Summary Table

DeductionSectionApplicable ToAmount
Commission for dividend/interest57(i)Dividend/InterestActual
Collection charges57(ii)Interest recoveryActual
Family pension57(iia)Family pension1/3rd or ₹15k (lower)
Plant rental57(iii)Machinery/plant let-out30% of rent

Key Points

✅ Section 57: Limited deductions from "Other Sources" (not liberal like business expenses)

✅ Family pension: Most important - 1/3rd or ₹15,000 (whichever less)

✅ 30% plant rental: Flat deduction, no proof needed

✅ Collection charges: Actual expenses for recovering interest

✅ Not deductible: Interest on loan for shares, general expenses

✅ Breakpoint: ₹45,000 family pension (below = 1/3rd, above = ₹15k limit)

Summary

  • Section 57: 3 main deductions from "Other Sources" income - commission (57(i)), collection charges (57(ii)), family pension (57(iia)), plant rental (57(iii))
  • Family pension (57(iia)): 1/3rd of pension OR ₹15,000 (whichever LESS) - most commonly used
  • Breakpoint: ₹45k pension (if ≤₹45k, deduction = 1/3rd; if >₹45k, deduction capped at ₹15k)
  • Plant/machinery rental (57(iii)): 30% flat deduction OR actual repairs/insurance (30% usually better)
  • Collection charges (57(ii)): Actual expenses for recovering interest (bank charges, legal fees)
  • Family pension vs Pension: Family pension → Other Sources (57(iia) deduction), Pension → Salary (standard deduction)
  • Limited deductions: Unlike business expenses, only specific Section 57 deductions allowed

Quiz Time! 🎯

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