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:
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
Family Pension - ₹60,000
| Family pension received | ₹60,000 |
| Add: 1/3rd of ₹60,000 | ₹20,000 |
| Add: Limit (maximum allowed) | ₹15,000 |
| Deduction (lower) | ₹15,000 |
| Taxable family pension | ₹45,000 |
Example 2 - Family Pension ₹40,000
Family Pension - ₹40,000
| Family pension received | ₹40,000 |
| Add: 1/3rd of ₹40,000 (lower) | ₹13,333 |
| Add: Limit | ₹15,000 |
| Deduction (lower) | ₹13,333 |
| Taxable family pension | ₹26,667 |
Rule: If pension ≤ ₹45,000 → Deduction = 1/3rd If pension > ₹45,000 → Deduction = ₹15,000 (limit)
Example 3 - Family Pension ₹2,00,000
Family Pension - ₹2,00,000
| Family pension received | ₹2,00,000 |
| Add: 1/3rd of ₹2,00,000 | ₹66,667 |
| Add: Limit (capped!) | ₹15,000 |
| Deduction (lower) | ₹15,000 |
| Taxable family pension | ₹1,85,000 |
Family Pension vs Pension
Key difference:
Pension (Regular)
- Received by retired employee
- Head: Salary income
- Deduction: ₹50k standard (old regime)
- Full amount taxable (no 1/3rd)
Family Pension
- Received by family after death
- Head: Other Sources
- Deduction: 1/3rd or ₹15k (57(iia))
- Partly exempt
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
Machinery Rental Income
| Rental income | ₹5,00,000 |
| Less: Less: 30% standard deduction (no proof needed) | (₹1,50,000) |
| Income from Other Sources | ₹3,50,000 |
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):
Mrs. Sharma - Other Sources Income
| FD Interest | ₹1,20,000 |
| Less: Less: Bank charges (57(ii)) | (₹2,000) |
| Net Interest | ₹1,18,000 |
| Add: Dividend (Infosys, Reliance) | ₹50,000 |
| Add: Family pension | ₹60,000 |
| Less: Less: Deduction 57(iia) (lower of ₹20k, ₹15k) | (₹15,000) |
| Net Family Pension | ₹45,000 |
| Add: Machinery rental | ₹2,00,000 |
| Less: Less: 30% deduction (57(iii)) | (₹60,000) |
| Net Rental | ₹1,40,000 |
| Total Income from Other Sources | ₹3,53,000 |
Added to Gross Total Income: ₹3,53,000
Summary Table
| Deduction | Section | Applicable To | Amount |
|---|---|---|---|
| Commission for dividend/interest | 57(i) | Dividend/Interest | Actual |
| Collection charges | 57(ii) | Interest recovery | Actual |
| Family pension | 57(iia) | Family pension | 1/3rd or ₹15k (lower) |
| Plant rental | 57(iii) | Machinery/plant let-out | 30% 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! 🎯
Test Your Knowledge
Question 1 of 5
1. Family pension deduction under Section 57(iia) is:
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