Section 57 Deductions for Tax Savings on Income from Other Sources

When computing income under the head “Income from Other Sources”, Section 57 of the Income Tax Act provides specific deductions that can help taxpayers minimize their taxable income. Understanding these deductions is crucial for individuals and businesses aiming to optimize their tax liabilities effectively.

Deduction on Dividend and Interest Income

Any reasonable sum paid as commission or remuneration to a banker or any other individual for realizing dividend or interest income can be deducted. However, dividends falling under sub-clause (f) of clause (22) of Section 2 do not qualify for this deduction.

Deduction for Certain Income Types Under Section 2(24)(x)

If income falls under sub-clause (x) of clause (24) of Section 2, it is eligible for deductions as per clause (va) of sub-section (1) of Section 36.

Deductions for Income Under Section 56(2)(ii) and (iii)

For certain types of income, deductions are allowed in line with:

• Section 30 (sub-clause ii of clause a)

• Section 31

• Section 32 (sub-sections 1 & 2)

• Section 38 (subject to its provisions)

Family Pension Deduction

A deduction of 33.33% of such income or ₹15,000, whichever is lower, is allowed. However, from April 1, 2025, under the Finance (No. 2) Act, 2024, this amount increases to ₹25,000 for taxpayers under Section 115BAC(1A)(ii).

Definition: Family pension is a monthly amount paid by an employer to the family of a deceased employee.

Deduction for Other Expenditures

Any expense not being capital in nature that is wholly and exclusively for earning such income is deductible.

Deduction for Certain Incomes Under Section 56(2)(viii)

For incomes falling under Section 56(2)(viii), a deduction of 50% is allowed. No other deductions under this section are permissible.

Restrictions on Dividend and Mutual Fund Income Deductions

No deductions are permitted from:

• Dividend income

• Income from Mutual Funds (Section 10(23D))

• Income from specified companies (Section 10(35))

However, interest expenses can be deducted up to 20% of such income in a given year.

Conclusion

Understanding Section 57 deductions ensures that taxpayers can claim eligible expenses and reduce their tax burden. Proper planning and compliance with these provisions can lead to significant savings, particularly for those earning passive income such as dividends, interest, and family pensions.

For expert tax planning and compliance support, consult a qualified Chartered Accountant (CA) to maximize your deductions under Section 57.