Deductions Under Section 57 of Income Tax Act, 1961

DEDUCTIONS IN INCOME FROM OTHER SOURCES: A guide to section 57 of Income Tax Act, 1961.

Deductions under the head “Income from Other Sources” often remain an unchartered territory from many taxpayers.  Section 57 of the Income Tax Act, 1961, specifically deals with the allowable deductions under the income head. This article explains all the clauses of section 57 in detail.

Section 57 of the Income Tax Act, 1961

1. 57(i): In case of dividend other than dividends referred to in section 115-O or Interest on securities

Description:

Deductions of any reasonable expenditure like commission or remuneration paid to the banker or any other person for the purpose of realizing such dividends or interest.

Example: If you pay to your banker Rs. 1,000.00 to get your dividend of Rs. 10,000. Then you can deduct Rs. 1000 from dividend income.

2. 57(ia): Income consists of recovery from employees as contribution to any provident fund etc. in terms   of section 2(24)(x):

Description:

If an employer receives contribution from employees towards welfare funds like Provident Fund, superannuation fund, ESI and keyman insurance policy but fails to pay the contribution received from employees to the welfare association within the due date, they are considered income under the head “Income from Other Sources”.

However, if deposited within the due date, the amount equivalent to deposited amount can be claimed as deduction.

Example: Premium paid for Keyman insurance policy can be deducted from maturity proceeds.

3. 57(ii): Income by way of letting on hire on machinery, plant or furniture, with or without building:

Description:

If an assesse earns income by way of rental or hiring income through letting on machinery, plant and furniture, with or without building and such income is not chargeable to Income Tax  under the head ‘Profit and gains of business and profession”, then following items of deduction are allowed from the income:

i. The amount paid on account of current repairs and premium on insurance for damage to the machinery, plant or furniture.

ii. The normal depreciation on the machinery, plant or furniture due thereon.

4. 57(iia): Income in the nature of family pension

Description:

• A deduction of a sum equal to 33.33% of family pension or Rs. 15,000 (in case of option regime) or Rs. 25,000 (in case of default regime), whichever is less, is allowable.
• Family pension in this case means amount payable by the employer to the person belonging to the family of an employee in the event of his death.

Exceptions in the cases of family pensions received by widow or children or nominated heirs of armed forces.

Example:

• If family pension received is Rs. 60,000.
• 33% of Rs. 60,000 = Rs. 20,000.
• Taxable Income : Rs. 60,000 minus Rs. 15,000 (or Rs. 25000) = Rs. 45,000 (or Rs. 35,000).

5. 57(iii): Any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.

6. 57(iv): Income by way of Interest on compensation/ enhanced compensation received chargeable to tax under section 56(2)(viii): Deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section.

Example:

Key Takeaways:

1. Section 57 provides a framework for claiming deductions against income classified as ‘Income from Other Sources.’

2. Deductions are allowed for expenses like repairs, insurance, depreciation and commissions provided they are wholly and exclusively incurred to earn the income.

3. Specific deductions, such as those for family pension or interest on compensation, have predefined limits.

4. Proper documentation and adherence to the conditions specified in Section 57 are crucial for claiming deductions.