Key Takeaways
- Section 57 lists the specific deductions you can claim against Income from Other Sources under Section 56. Nothing outside this list is allowed for this head.
- Family pension gets a standard deduction under Section 57(iia): the lower of 33.33% of the pension or Rs 15,000 in the old regime, raised to the lower of 33.33% or Rs 25,000 in the new regime under Section 115BAC from AY 2025-26.
- Against dividend income, the only deduction allowed is interest on money borrowed to make the investment, and it is capped at 20% of the dividend included in your total income (proviso to Section 57).
- Section 57(iii) permits any other revenue expenditure laid out wholly and exclusively to earn the income, provided it is not capital in nature.
- Section 58 blocks certain items entirely, and Section 58(4) allows no deduction at all against lottery and other casual winnings taxed under Section 115BB.
What deductions are allowed under Section 57 of the Income Tax Act? Section 57 permits deductions against Income from Other Sources: commission to realise dividends or interest [57(i)], repairs, insurance and depreciation on let-out assets [57(ii)], the family pension standard deduction [57(iia)], and any other revenue expenditure incurred wholly and exclusively to earn the income [57(iii)]. (Source: Section 57, Income Tax Act; incometaxindia.gov.in)
Income from Other Sources is the residuary head. Anything that does not fit under Salary, House Property, Business, or Capital Gains lands here: bank interest, dividends, family pension, rent on a machine let out, gifts above the threshold, and casual winnings. Section 56 tells you what is taxable under this head. Section 57 tells you what you are allowed to deduct before that income is taxed.
The distinction matters because taxpayers routinely overpay by not claiming legitimate expenses, and just as often they claim expenses that the law specifically disallows. This guide walks through each clause of Section 57 with figures, explains the two provisos that trip people up (family pension and the 20% dividend cap), and sets out the Section 58 disallowances that override everything.
Looking for expert help with Section 57 deductions income from other sources? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Section 57(i): Cost of Collecting Dividends and Interest on Securities
Section 57(i) allows a deduction for any reasonable sum paid by way of commission or remuneration to a banker, or to any other person, for the purpose of realising dividend or interest on securities on your behalf (Section 57(i), Income Tax Act; incometaxindia.gov.in).
The logic is straightforward. If you engage a bank or an agent to collect interest on securities or to realise a dividend, that collection charge is a cost of earning the income, so it is deductible. In practice this clause covers very little today because dividends are credited electronically and collection charges are rare. Its importance now is mostly historical, but the principle survives: only the cost of realising the income qualifies, not the cost of making the investment.
Note the interaction with the dividend proviso below. Even though 57(i) mentions dividends, Section 58 read with the proviso to Section 57 shuts off every dividend-related deduction except interest on borrowed capital. So a banker's commission to realise a dividend is, in effect, no longer claimable against dividend income after the Finance Act 2020 changes.
Section 57(ii): Repairs, Insurance and Depreciation on Let-Out Assets
When you let out plant, machinery, furniture, or a building, and that letting is taxable under Income from Other Sources rather than as business income, Section 57(ii) lets you deduct the running costs of those assets.
This head applies to two situations under Section 56(2):
- Section 56(2)(ii): letting out machinery, plant, or furniture on hire, where it is not a business.
- Section 56(2)(iii): letting out machinery, plant, or furniture together with a building, where the two lettings are inseparable and the building letting is not chargeable as house property.
For these cases, Section 57(ii) imports the deductions available to a business: current repairs (Section 30 and 31), insurance premium on the assets, and depreciation (Section 32(1) and (2)). So if you hire out a generator set with an annual maintenance contract, an insurance policy, and a written-down value eligible for depreciation, all three costs reduce the hire income before tax.
The condition is that the asset must actually be used to earn the income taxed under this head. Depreciation follows the same block-of-assets method used in business computation.
Section 57(iia): The Family Pension Standard Deduction
Family pension is the pension received by the legal heirs of a deceased employee. It is not a salary in the recipient's hands because there is no employer-employee relationship, so it is taxed under Income from Other Sources, not under the Salary head. Because the standard deduction under Section 16 is unavailable here, the law gives family pensioners a separate standard deduction under Section 57(iia).
The deduction is the lower of 33.33% (one-third) of the family pension or Rs 15,000 under the old tax regime (Section 57(iia), Income Tax Act; incometaxindia.gov.in).
The Finance (No. 2) Act 2024 inserted a proviso to Section 57(iia). Where income tax is computed under the new regime in Section 115BAC(1A), the figure of Rs 15,000 is read as Rs 25,000. This enhanced limit applies from AY 2025-26 (FY 2024-25) onwards. So a family pensioner who opts for the new regime gets a larger standard deduction than one on the old regime.
Comparison
Family Pension Deduction: Old vs New Regime
Section 57(iia) standard deduction on family pension
| Parameter | Old Regime | New Regime (115BAC), AY 2025-26 onward |
|---|---|---|
| Formula | Lower of 33.33% or Rs 15,000 | Lower of 33.33% or Rs 25,000 |
| Statutory basis | Section 57(iia) | Proviso to Section 57(iia) via 115BAC(1A) |
| Ceiling on deduction | Rs 15,000 | Rs 25,000 |
| One-third cap binds when pension is | Below Rs 45,000/year | Below Rs 75,000/year |
| Effective from | Long standing | AY 2025-26 (FY 2024-25) |
Source: Section 57(iia) and proviso; Finance (No. 2) Act 2024; incometaxindia.gov.in
Worked Example: Family Pension
Mrs Rao receives a family pension of Rs 1,20,000 for the year after her husband, a retired employee, passed away.
Step 1. Compute one-third of the pension: 33.33% of Rs 1,20,000 = Rs 40,000
Step 2. Apply the ceiling for each regime:
- Old regime: lower of Rs 40,000 or Rs 15,000 = Rs 15,000. Taxable family pension = Rs 1,20,000 minus Rs 15,000 = Rs 1,05,000.
- New regime: lower of Rs 40,000 or Rs 25,000 = Rs 25,000. Taxable family pension = Rs 1,20,000 minus Rs 25,000 = Rs 95,000.
The one-third figure (Rs 40,000) is higher than both ceilings, so the flat cap decides the deduction. The one-third cap only becomes the binding number when the pension itself is small: below Rs 45,000 a year in the old regime, or below Rs 75,000 a year in the new regime.
Section 57(iii): Any Other Expenditure to Earn the Income
Section 57(iii) is the catch-all clause. It allows a deduction for any other expenditure (not being capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning the income (Section 57(iii), Income Tax Act; incometaxindia.gov.in).
Three tests must all be satisfied:
- Revenue in nature. Capital expenditure is excluded. Buying the asset that produces the income is not deductible; the cost of running it may be.
- Wholly and exclusively for earning the income. There must be a direct nexus between the expense and the income under this head. A partly personal expense fails this test.
- Actually laid out or expended. A notional or contingent liability does not qualify.
Common examples that qualify under 57(iii) include interest on money borrowed to make an interest-bearing investment (a fixed deposit or a loan given out at interest), collection charges on interest income, and stationery or professional fees directly tied to earning the income. The clause does not require that the expenditure actually produced income in that year; the Supreme Court has held that the test is the purpose of the outlay, not its result.
The important carve-out sits in the proviso and in Section 58: interest borrowed to earn dividend income is capped, as explained next.
The 20% Cap on Interest Against Dividend Income
This is the change most investors miss. Until FY 2019-20, dividends were exempt in the shareholder's hands because the company paid Dividend Distribution Tax. The Finance Act 2020 abolished DDT and made dividends taxable in the investor's hands from FY 2020-21. In exchange, the law allows a limited deduction for the cost of earning that dividend, but a narrow one.
The proviso to Section 57 provides that against dividend income (or income in respect of units of a mutual fund or specified company), no deduction is allowed for any expenditure other than interest, and even that interest deduction cannot exceed 20% of the dividend income included in your total income for the year (proviso to Section 57, Income Tax Act; incometaxindia.gov.in).
So two limits apply at once:
- Only interest on borrowed capital is deductible. Demat charges, advisory fees, and portfolio management fees are not.
- The interest allowed is the lower of actual interest paid or 20% of the dividend.
Worked Example: Interest on Borrowed Money to Buy Shares
Mr Khan borrows Rs 5,00,000 to buy shares and pays Rs 45,000 of interest during the year. Those shares pay him a dividend of Rs 1,50,000.
Step 1. Compute the 20% ceiling: 20% of Rs 1,50,000 = Rs 30,000
Step 2. Compare with actual interest: Actual interest paid = Rs 45,000. The deduction is the lower of Rs 45,000 and Rs 30,000 = Rs 30,000.
Step 3. Compute taxable dividend: Rs 1,50,000 minus Rs 30,000 = Rs 1,20,000
The remaining Rs 15,000 of interest (Rs 45,000 minus Rs 30,000) is not deductible at all under this head, and it cannot be carried to any other head. If the dividend had been only Rs 1,00,000, the ceiling would be Rs 20,000 and the taxable dividend Rs 80,000, with Rs 25,000 of interest lost.
Tax Rate Chart
Section 57 Deduction Limits at a Glance
Ceilings that cap the deduction regardless of actual spend
Interest against dividend income
of dividend included in total income; only interest, nothing else
Family pension, old regime
or 33.33% of pension, whichever is lower
Family pension, new regime
or 33.33% of pension, whichever is lower; AY 2025-26 onward
Casual winnings (115BB)
no expenditure or allowance deductible
Source: Section 57 and 58, Income Tax Act; incometaxindia.gov.in
Section 58: What You Cannot Deduct
Section 58 overrides Section 57. Even if an expense looks like it fits a Section 57 clause, if it is caught by Section 58 it is disallowed. The main items are:
- Personal expenses of the taxpayer, under Section 58(1)(a)(i).
- Interest chargeable under the Act payable outside India on which tax has not been paid or deducted at source, under Section 58(1)(a)(ii).
- Salary payable outside India on which tax has not been paid or deducted under Chapter XVII-B, under Section 58(1)(a)(iii).
- Wealth tax paid, which is not deductible against any head.
- Amounts hit by Section 40A (for example, cash payments above the limit and certain payments to related parties), which Section 58(2) applies to this head as they apply to business income.
Comparison
Deductible vs Not Deductible Under This Head
Section 57 allows, Section 58 blocks
| Parameter | Allowed (Section 57) | Blocked (Section 58) |
|---|---|---|
| Interest on money borrowed for an FD or loan given at interest | Deductible under 57(iii) | Not blocked |
| Interest on money borrowed to buy shares | Deductible up to 20% of dividend | Excess over 20% blocked |
| Repairs, insurance, depreciation on let-out machinery | Deductible under 57(ii) | Not blocked |
| Personal expenses of the taxpayer | Not allowed | Blocked by 58(1)(a)(i) |
| Interest or salary payable outside India without TDS | Not allowed | Blocked by 58(1)(a)(ii)/(iii) |
| Any expense against lottery or casual winnings | Not allowed | Blocked by 58(4) |
Source: Sections 57 and 58, Income Tax Act; incometaxindia.gov.in
No Deduction Against Lottery and Casual Winnings
Section 58(4) is absolute. No deduction for any expenditure or allowance is allowed in computing income by way of winnings from lotteries, crossword puzzles, races including horse races, card games, other games, gambling, or betting (Section 58(4), Income Tax Act; incometaxindia.gov.in).
These winnings are taxed under Section 115BB at a flat rate of 30% (plus surcharge and cess) on the gross amount. You cannot set off the cost of buying lottery tickets, the entry fee to a card game, or any loss against the winnings. If you win Rs 10,00,000 in a lottery, tax is computed on the full Rs 10,00,000 even if you spent Rs 2,00,000 on tickets over the year. TDS under Section 194B is deducted at source on the gross winnings above the threshold, and no Section 57 deduction reduces it.
The only narrow exception in Section 58(4) is for a taxpayer whose activity of owning and maintaining race horses is a source of income, where specific expenses tied to that activity are recognised under Section 74A. Ordinary punters get nothing.
Which Regime Should a Family Pensioner Choose?
The new regime under Section 115BAC now gives family pensioners a Rs 25,000 standard deduction against Rs 15,000 in the old regime, so on the pension itself the new regime is more generous by up to Rs 10,000 of deduction. Whether the new regime wins overall still depends on the rest of the return: if the pensioner also claims large deductions under Chapter VI-A (such as Section 80C, 80D, or interest on a housing loan), those are unavailable in the new regime and the old regime may still produce a lower total tax.
The correct approach is to compute tax both ways for the full income, not to decide on the family pension deduction in isolation.
Let Tax Garden Handle Your Other Sources Income
Income from Other Sources looks simple until the provisos bite. Miss the 20% dividend cap and your return is wrong; miss the family pension deduction and you overpay; claim a personal or capital expense and you invite a notice.
Tax Garden classifies each stream of your other-sources income correctly, applies the exact Section 57 deduction available for your regime, tests the 20% interest ceiling on dividend income, and confirms that nothing disallowed under Section 58 has slipped in. We compute your tax under both regimes so you file on the one that leaves you paying the least, lawfully.
Frequently Asked Questions
Can I deduct the interest on a loan I took to buy shares against my dividend income?
Yes, but only up to 20% of the dividend income included in your total income for the year. The proviso to Section 57 allows interest on borrowed capital as the only deduction against dividends, and caps it at 20%. If you paid interest above that limit, the excess is not deductible under any head. No other expense, such as demat or advisory fees, is allowed against dividends.
How much standard deduction can a family pensioner claim?
Under the old regime, Section 57(iia) allows the lower of 33.33% of the family pension or Rs 15,000. Under the new regime in Section 115BAC, the ceiling is raised to Rs 25,000, so the deduction is the lower of 33.33% or Rs 25,000. The Rs 25,000 limit applies from AY 2025-26 (FY 2024-25).
Is family pension taxed as salary?
No. Family pension is received by the legal heirs of a deceased employee, so there is no employer-employee relationship. It is taxed under Income from Other Sources, not Salary, which is why the Section 16 standard deduction does not apply and Section 57(iia) provides a separate deduction instead.
Can I claim the cost of lottery tickets against my lottery winnings?
No. Section 58(4) expressly disallows any expenditure or allowance against winnings from lotteries, crossword puzzles, races, card games, gambling, or betting. These winnings are taxed at a flat 30% under Section 115BB on the gross amount, with TDS under Section 194B, and no deduction reduces that.
I let out my old machinery on hire. Can I claim depreciation on it?
Yes. Where the hire income is taxed under Income from Other Sources under Section 56(2)(ii) or (iii), Section 57(ii) allows repairs (Section 30 and 31), insurance premium on the asset, and depreciation (Section 32). The asset must actually be used to earn the hire income, and depreciation follows the block-of-assets method.
What expenses does Section 58 specifically disallow?
Section 58 blocks personal expenses of the taxpayer, interest or salary payable outside India on which tax has not been paid or deducted at source, wealth tax, and amounts hit by Section 40A such as excess cash payments. Section 58(4) separately disallows every expense against casual winnings taxed under Section 115BB.
Sources: This guide is based on the Income-tax Act, 1961, as published by the Income Tax Department. Section 57 sets out the deductions from Income from Other Sources, including clause (i) on collection charges, clause (ii) on repairs, insurance and depreciation of let-out assets, clause (iia) on the family pension standard deduction, and clause (iii) on other revenue expenditure. The proviso to Section 57(iia), inserted by the Finance (No. 2) Act 2024, raises the family pension deduction ceiling to Rs 25,000 under Section 115BAC from AY 2025-26. The proviso to Section 57 caps interest against dividend income at 20% following the Finance Act 2020 abolition of Dividend Distribution Tax. Section 58 lists amounts not deductible, and Section 58(4) read with Section 115BB disallows any deduction against casual winnings. Readers should confirm the current position for their assessment year at incometaxindia.gov.in before filing.
