What is Section 57 of the Income Tax Act?
Section 57 is like a helper rule. It applies to Income from Other Sources, that’s money you get that isn’t part of salary, business profit, house rent, or selling of assets. The rule says: if you spent money to earn this “side income,” you may deduct that spending to pay less tax. Think of it like saying, “I spent money to get this income, so I should only pay tax on what remains.”
This rule links closely to Section 56, which defines what counts as “Other Sources” of income.
Who Can Use These Deductions, and When?
Any taxpaying person or entity in India who has “other income” like bank interest, dividends, letting out machinery, or family pension can use Section 57 to reduce their taxable income. The key is that the expense must be necessary and directly related to earning that income.
Types of Deductions Allowed Under Section 57
Here’s what you can subtract under Section 57:
- Commission or remuneration paid to collect income like interest or dividends (for example, a commission paid to a banker)
- Interest cost on money borrowed to get dividend income – capped at 20% of the dividend amount
- Expenses on renting out plant, machinery, furniture, or building, such as repairs, insurance, taxes, and depreciation
- Employee contribution to welfare funds like PF or superannuation, if deposited on time under Section 57(ia)
- Standard deduction for family pension – either ₹15,000 or one-third of the pension, whichever is lower (older regime); or up to ₹25,000 one-third under the new tax regime from FY 2025–26
- Expenses related to earning any other income (not capital or personal expenses), if fully and only for that purpose
- 50% of interest received as compensation (like delayed payment interest)
- All expenses for maintaining race horses if incomes from that activity (rare, but included under Section 58)
Family Pension Deduction Under Section 57(iia)
When someone you love (like a parent) passes away, and you get a family pension, Section 57 gives you a standard deduction. Under the old tax rules, you can deduct whichever is lower: ₹15,000 or one-third of the pension. Under the new tax regime (from FY 2025–26), the limit was raised up to ₹25,000. This way, you only pay tax on the rest of the pension.
What Deductions Are Not Allowed? (Section 58)
There are some expenses you must not deduct, including:
- Personal expenses, like your daily snacks or house rent
- Capital expenses, like buying a new car
- Salaries or interest paid outside India where no tax was deducted
- Wealth-tax
- Any expenses for lottery, games, or betting income—those are fully taxed, no deduction allowed
- And some other prohibited items spelled out in Section 58
How to Calculate Taxable Income from Other Sources
First, add up all your “other” incomes like interest, dividends, family pension, plant rent, compensation interest, etc. Then subtract all the deductions you’re eligible for (like commission, interest up to limits, repair expenses, standard pension deduction).
The result is your net income from other sources. This net income gets added to your total taxable income and taxed at your applicable tax rate.
Why Section 57 Matters for Taxpayers
Remember, this section exists to treat you fairly. When you earn a little extra outside your regular job, paying tax on the gross amount sounds unfair because you often had to spend money to earn it in the first place.
Claiming deductions makes sure you only pay tax on real gain. It also encourages good record-keeping and ensures the tax system is transparent.
Common Mistakes Taxpayers Make
- Many people make avoidable mistakes. Some claim full interest on borrowed money for dividends, forgetting it’s limited to 20%. Others mix up family pension and their own pension, or forget to apply the standard deduction.
- It’s common to not keep bills or proofs for expenses like repairs or commission. Or to wrongly claim expenses against lottery or winnings that’s disallowed. These mistakes can lead to wrong tax returns or even penalties later.
How to Stay Compliant and Keep Documents
- You should keep records like commission bills, loan statements, repairs invoices, family pension slips, and more. These help you justify your deductions if the tax department asks.
- In your ITR, enter details correctly under the “Income from Other Sources” section. Tools like Form 16A or bank statements can help. Accurate record-keeping makes tax filing easier and safer.
What Happens If You Claim Wrongly?
If expenses are incorrectly claimed, they may be disallowed and added back to your income. You could face penalties, have to pay interest on tax due, or get a notice from the Income Tax Department. In serious cases of wrong claims, you may even be prosecuted. It’s always better to be careful.
Smart Tips for Claiming Deductions
- Don’t guess when in doubt, consult a tax professional, especially for complicated incomes like plant rentals.
- Keep clean, well-labeled records receipt date, amount, purpose, who received it.
- Double-check your ITR entries match them with bank statements and AIS/26AS.
- If you borrowed to invest for dividends, make sure that borrowing is clearly documented, and use the 20% cap.
- For family pension, check whether you’re under the old or new tax regime to apply the correct limit.
- Don’t try shortcuts like claiming lottery-related expenses they’ll backfire.
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