When you earn income under Income from Other Sources (IFOS), the tax law doesn't hit you on gross receipts alone — Section 57 gives you specific deductions before computing your taxable income. Think of it as the expense-claim list for IFOS, just like Section 30–37 works for business income.
Clause (i) — Commission to collect dividends/interest: If you pay a banker or any agent a reasonable commission to collect dividends or interest on securities on your behalf, that commission is fully deductible. Simple and clean.
Clause (iia) — Family Pension (Exam Favourite!): This is the one examiners love. When a widow or family member receives a family pension — a regular monthly amount paid by the employer after an employee's death — the law allows a standard deduction of 33⅓% of the pension amount OR ₹15,000, whichever is lower. No bills, no proofs — just a flat deduction. Critical distinction: this applies only to family members, not to the retired employee's own pension (that goes under 'Salaries'). Get this wrong and you'll lose easy marks.
Clause (iii) — General revenue expenditure: Any expense that is (a) not capital in nature, and (b) laid out wholly and exclusively to earn that IFOS income is deductible. For example, interest paid on a loan taken to invest in fixed deposits, or fees paid to a portfolio manager. Personal expenses or expenses with dual purpose? Not allowed.
Clause (iv) — Interest on compensation [Section 56(2)(viii)]: When someone receives interest on compensation or enhanced compensation (typically from government land acquisition), 50% of that interest is deducted automatically — and no other deduction is available on this income. This 50% is a final, exclusive deduction; don't try adding anything else on top.
Always pair Section 57 with Section 58 (disallowances) in exam problems — Section 58 overrides and blocks certain deductions even if they seem to fit Section 57. This section is asked frequently as a 4-mark or 6-mark 'compute IFOS income' problem, with family pension and interest-on-compensation being the two most tested clauses.
Worked example
Example 1 — Family Pension Deduction
Mrs. Kamala Devi receives a family pension of ₹3,600 per month from her late husband Mr. Ramesh's employer. Compute her taxable income under IFOS.
Step
Working
Annual family pension
₹3,600 × 12 = ₹43,200
33⅓% of ₹43,200
₹14,400
Flat cap under Section 57(iia)
₹15,000
Deduction = lower of both
₹14,400
Taxable IFOS income
₹43,200 − ₹14,400 = ₹28,800
Note: Had the pension been ₹54,000/year, 33⅓% would give ₹18,000, but the cap kicks in — deduction would be ₹15,000.
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Example 2 — Interest on Compensation (50% Deduction)
Mr. Arvind Sharma's agricultural land was compulsorily acquired by the government. In FY 2025-26, he received ₹1,20,000 as interest on the enhanced compensation awarded. Compute his IFOS income.
Step
Working
Interest on enhanced compensation [Section 56(2)(viii)]
₹1,20,000
Deduction u/s 57(iv) — 50% of ₹1,20,000
₹60,000
Any other deduction allowed?
No (Section 57(iv) bars it explicitly)
Taxable IFOS income
₹1,20,000 − ₹60,000 = ₹60,000
⚠️ Common exam mistakes
Mixing up family pension with the employee's own pension. Students deduct 33⅓% or ₹15,000 on a retired employee's pension too — that's wrong. Own pension is taxed under 'Salaries.' Section 57(iia) applies only when the pension reaches a family member after the employee's death.
Skipping the ₹15,000 cap on family pension. Don't stop at calculating 33⅓%. Always compute both figures and pick the lower one — the law says 'whichever is less,' not 'whichever is more convenient.'
Claiming extra deductions on interest from compensation. Students add interest on loans or other costs against Section 56(2)(viii) income. Section 57(iv) is explicit: once you take the 50% deduction, nothing else is deductible on that income.
Deducting capital expenditure under Clause (iii). Only revenue expenditure wholly and exclusively for earning IFOS income qualifies. Buying an asset to generate income is capital — blocked. Maintenance or interest on a loan for that asset may be revenue — allowed.
Ignoring Section 58 in exam problems. Students identify a valid-looking deduction under Section 57 but forget Section 58 can disallow it (e.g., personal expense, income tax paid, or expenditure on winnings from lotteries). Always cross-check both sections before finalising the computation.
Bare-Act text Section 57 · Income Tax Act 1961 · click to expand
The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely:— (i) in the case of dividends, other than dividends referred to in section 115-O, or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee; (ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head "Income from other sources", deductions, so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36; (ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and sub-sections (1) and (2) of section 32 and subject to the provisions of section 38; (iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less. Explanation.—For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death; (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; (iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a 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.