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.
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 |
📖 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.