Deductions under Section 57 of Income Tax Act, 1961

It is a very well known fact that Income Tax Act provides certain deductions against the taxable incomes of a particular person in order to provide a relief from income tax liability. Section 57 of the Income Tax Act particularly deals with deductions with respect to incomes chargeable under the income head “Income from other sources”. This section specifies the expenditures that can be deducted from such income before arriving at the taxable amount. Let us understand what Section 57 stands for and what are some of the deductions provided under the same.

Section 57 overview:
Income from other sources (IFOS) dels with all types of incomes which are not covered under rest of the four heads of income namely Salary, house property income, profits and gains from business and profession and income from capital gains. IFOS applies to dividends, lottery winnings, interest income, family pensions, and other forms of income received by a taxpayer. 

Many of us know that the businesses enjoy benefit of deducting expenditure related to business from turnover in order to arrive at a profit figure, it is a very lesser known aspect to know that there are certain deductions available only against the head “income from other sources”.

Section 57 deals with such deductions which are considered while computing income from other sources.

Deductions that can be Claimed Under Section 57:

A taxpayer is eligible to claim following deductions under section 57-

• Dividends or interest on earned on tradable financial assets or securities - Section 57(i):

Any reasonable sum spent by commission or remuneration to a banker or any other person to realise such dividend or interest on behalf of the assessee is allowed as a deduction. 

The Finance Act, 2020, amended Section 57(i) which is effective 1^st April, 2021. As per this, an assessee can claim a deduction of interest expenses for earning a dividend income. Interest on money borrowed for investing in the shares can be claimed as a deduction subject to a maximum of 20% of dividends or income in respect of units of a mutual fund. 

However, a shareholder is not permitted to claim a deduction for any other expenditure paid to gain dividend income.

• Deduction in the form employee contributions to welfare schemes - Section 57(ia):

An employee’s contribution towards provident fund(PF), superannuation fund(SF), or employee state insurance(ESI) and such other welfare schemes in the accounts of an employer is deemed as income if the same is not taxable under the head “profits and gains of business or profession”. In case the employer deposits any amount towards such funds, which gets credithvsed before or on the due date, then such an amount is allowed as a deduction to an assessee.

• Deduction in the form of expenditure on rental income- Section 57(ii):

Earning the rental income by way of letting out of plants, machinery, furniture or building or any expenses incurred on repairing the above assets and any insurance obtained upon the same is also allowed as a deduction. Depreciation is applicable to such a plant, machinery, and furniture. However, depreciation in the case of a building will only be allowed if the taxpayer is the actual owner of the property.

• Family Pension standard deduction – Section 579(iia):

In the case of family pension, one-third of such income or Rs 15,000, whichever is less, is allowed as a deduction. However, as per recent Budget 2024 announcement, limit of maximum Deduction under Family Pension has been increased from Rs. 15,000 to Rs. 25,000.

• Deduction from any other income – Section 57(iii):

Any other expenditure (not a capital expenditure) incurred to earn such income chargeable to tax under the head, “income from other sources”. This deduction is not allowed to a foreign company.

• Deduction for interest on compensation or improved compensation- Section 57(iv):

For interest on compensation or enhanced compensation received – 50% of such interest received is allowed as a deduction provided certain specific conditions are fulfilled.

Conclusion:
Section 57 allows taxpayers to reduce their taxable income from "Income from Other Sources" by claiming these deductions, subject to the conditions laid out in the Act. The Income Tax Act's Section 57 allows deductions for costs incurred in generating income taxable under the head IFOS.