Deductions for Income from Specific Sources in CA Inter Taxation

Understand Deductions for Income from Specific Sources

Key rules to remember

Author royalty deduction

Lower of (net royalty income, ₹3,00,000)

Resident individual who is the original author of a literary, artistic or scientific book and holds the copyright in it. Allowed only if the assessee has not opted for the new tax regime under section 202 of the Income-tax Act, 2025. Net income means royalty less related expenses. Works such as textbooks for school use, journals, magazines, newspapers and diaries are excluded; confirm the exact list of excluded works in the Act and the study material. Where the payment is a lump-sum royalty or copyright fee, the amount counted is limited to 15% of the value of the books sold. Income earned outside India is eligible only if it is brought into India within six months from the end of the tax year, or within any further time the competent authority allows. A certificate from the prescribed authority is needed.

Patent royalty deduction

Lower of (net royalty income from the patent, ₹3,00,000)

Resident individual who is a patentee, with the patent registered under the Patents Act, 1970. Allowed only if the assessee has not opted for the new tax regime under section 202 of the Income-tax Act, 2025. The income is royalty for the patent. Foreign income must be brought into India within the time allowed. A certificate from the prescribed authority is needed.

Savings account interest

Lower of (interest on savings account, ₹10,000)

For individuals and HUFs other than resident senior citizens, who claim the ₹50,000 deduction below instead. A non-resident can claim it. Allowed only if the assessee has not opted for the new tax regime under section 202 of the Income-tax Act, 2025. The interest is from a savings account with a bank, a co-operative society carrying on banking, or a post office. Fixed deposit and recurring deposit interest do not qualify. A resident senior citizen cannot claim this deduction in addition to the one below.

Deposit interest of senior citizens

Lower of (eligible deposit interest, ₹50,000)

For a resident individual aged 60 or more at any time in the tax year. Allowed only if the assessee has not opted for the new tax regime under section 202 of the Income-tax Act, 2025. Interest on savings, fixed and recurring deposits with a bank, a co-operative bank or a post office qualifies. Interest on company deposits or bonds does not.

Overall limit

Total of these deductions ≤ Gross total income

The deduction cannot create a loss. The income must be included in gross total income first.

How to solve Deductions for Income from Specific Sources questions

1. 1Check the person. Note residence, age and whether the assessee is an individual or HUF. Also check that the assessee has not opted for the new tax regime under section 202; if it has, none of these deductions is allowed.
2. 2Classify each receipt. Decide whether it is author royalty, patent royalty, savings interest or other deposit interest. Ignore anything that does not fit.
3. 3Confirm it is included in gross total income. Show the income under its proper head first, with expenses allowed under that head.
4. 4Work out the eligible income for each deduction. Use net royalty after expenses. Apply the 15% limit to a lump-sum royalty. Take only the savings account interest for the ₹10,000 deduction.
5. 5Apply the cap. Deduction = lower of eligible income and the cap for that deduction.
6. 6Decide between the savings account deduction and the senior citizen deduction. A resident senior citizen takes the ₹50,000 deduction on all eligible deposit interest. The ₹10,000 deduction is not claimed in addition. Other individuals and HUFs take only the ₹10,000 deduction.
7. 7Add all deductions and check the total is not more than gross total income. Deduct from gross total income to reach total income.
8. 8Write a one-line condition note for each deduction, such as the certificate or residence, to earn the step marks.

Quickest way: Four caps, four persons, one comparison

Common mistakes in Deductions for Income from Specific Sources

• Claiming the ₹10,000 deduction on fixed deposit interest.

  Students treat all bank interest as the same.

  Fix: The ₹10,000 deduction is only for savings account interest. Only a resident senior citizen can claim for deposits, under the ₹50,000 deduction.

• Giving both the ₹10,000 and the ₹50,000 deductions to a resident senior citizen.

  The two provisions look like they stack.

  Fix: The ₹10,000 deduction is for individuals and HUFs other than resident senior citizens. A resident senior citizen takes the ₹50,000 deduction on all eligible interest. It already includes savings interest. Do not add the ₹10,000 on top.

• Using gross royalty instead of net royalty for the ₹3,00,000 comparison.

  Students forget that the deduction is on income, not on receipts.

  Fix: Deduct expenses related to the royalty first. Then compare the net figure with ₹3,00,000.

• Allowing the royalty deductions or the ₹50,000 deduction to a non-resident, or any of these deductions to a firm or company.

  Students remember the cap but not the person.

  Fix: Royalty deductions and the ₹50,000 deduction are for resident individuals. The ₹10,000 savings account deduction is for individuals and HUFs other than resident senior citizens, resident or non-resident. None of them is for a firm or company.

• Allowing these deductions to an assessee who has opted for the new tax regime.

  Students check the person and the cap but not the regime.

  Fix: These deductions are allowed only if the assessee has not opted for the new tax regime under section 202 of the Income-tax Act, 2025. State the regime assumption in your answer.

• Deducting the full amount without checking gross total income.

  Students stop once the cap is applied.

  Fix: Add all such deductions and compare with gross total income. The deduction cannot exceed it.

Worked examples