Expenses allowed as deductions from income from other sources

Generally, income derived by a taxpayer in the form of dividends, lottery winnings, interest income, family pension, etc. is taxable under the head “Income from other sources”. But there is always a question of the taxpayer whether they could claim any deductions against such income taxable under the head “Income from other sources”. This question becomes even more important as the business category taxpayers are easily able to claim a deduction for expenditures incurred by them but there is no straightforward answer for those taxpayers who are deriving income from salaries and other sources. Our answer to this question is “Yes”. This article gives a detailed answer to this question and explains the nature of deductions available against other source incomes.

Before giving the answer to the main issue, we will first understand the nature of incomes covered under “Income from other sources”.

Incomes taxable under “Income from Other Sources”

According to section 56 of the Income Tax Act, the following incomes are generally taxable under the head “Income from Other Sources”:

Now, we come to the main issue of this article i.e. what are the nature of expenditures that can be claimed against the income from other sources.

Friends, expenses allowed as deduction while computing income chargeable to tax under the head “Income from other sources” are detailed under section 57 of the Income Tax Act, 1961. But before moving to section 57, a special mention is required to the deduction allowed u/s 80TTA & 80TTB. We all are aware that the Government of India allows special deduction u/s 80TTA & 80TTB in respect of interest income on bank deposits. So, it will be truly unfair if these are not discussed at this stage.

Deduction under section 80TTA

Interest earned on saving bank account is to be shown as a taxable income under the head “Income from other sources”. Banks are not obliged to deduct TDS on saving bank interest. So, the taxpayer should take extra care in calculating saving bank interest income. They may refer Annual Information Statement (AIS) available on the Income Tax Portal for ascertaining the amount of saving bank interest if bank statements/ passbooks are not readily available with them.

Note: Senior Citizens (persons of age above 60 years) are not entitled to get the benefit of section 80TTA. Rather, they are entitled to deduction under section 80TTB.

Deduction under section 80TTB

Under section 80TTB of the Income Tax Act, senior citizens are entitled to get the deduction of up to Rs. 50,000 on interest earned by them from saving deposits & fixed deposits including recurring deposits held with banks, post offices, etc.

Expenses allowed as a deduction from income from other sources

Following expenditures are allowed as deduction while computing the income chargeable to tax under the head “Income from Other Sources”:

• Commission or remuneration for realizing dividend income or interest on securities

If any commission or any collection charges have been incurred for realizing dividend or interest income chargeable to tax under “Income from other sources”, you are entitled to claim such commission or collection charges as a deduction from dividend or interest income.

• Expenses (not capital nature) like repairs, insurance premium, and depreciation in respect of the plant, machinery, furniture, and buildings are deductible from rental income earned by letting out of the plant, machinery, furniture, and building (Subject to the condition that rental income from plant, machinery or furniture is chargeable to tax under income from other sources)

• Deduction against family pension

A deduction of Rs. 15,000 or 33.333% of family pension, whichever is less, is allowed against the income in the nature of family pension which is paid to the family members of a deceased employee.

• In case of interest received on compensation or enhanced compensation, 50% of the interest income is allowed as deduction w.e.f. A.Y. 2010-11.

• In addition to the above, the deduction is also available in respect of any other expenditure (not being capital nature expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.

But the discussion is not yet complete as there are certain riders which should also be kept in mind before availing deduction towards other source incomes. Section 58 of the Income Tax Act provides such riders or exceptions which should be kept in mind while claiming the deduction for expenditures incurred towards other sources income.

Expenses not allowed as deductions while computing income chargeable to tax under the head “Income from other sources”- Section 58

• Personal Expenses of the assessee
• Expenditure of capital nature
• Cash Expenditure incurred in excess of Rs. 10,000- Provisions of Section 40A (3) shall apply.
• Any interest which is payable outside India on which tax has not been paid or deducted at source
• Any amount which is chargeable under the head “salaries”, which is payable outside India on which tax has not been paid or deducted at source
• 30% of any sum payable to a resident shall be disallowed if tax has not been paid or deducted at source as per the provisions of section 40a(ia).

Note:

No deduction in respect of any expenditure or allowance shall be allowed in respect of income by way of winnings from lotteries, crossword puzzles, races including horse races, card games, and other games of any sort or form or from gambling or betting of any form or nature.

Disclaimer: The above article is meant for informative purposes only. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article.

About Author: The article is contributed by CA Naveen Goyal who is having experience of more than 15 years in the field of Direct Taxation (Income Tax) and Indirect taxes. He can be reached at: ca.naveen80@gmail.com