Deductions and Disallowances under Income from Other Sources

Understand Deductions and Disallowances under Other Sources

Key rules to remember

Collection commission (section 93(1)(a))

Deduction = reasonable commission or remuneration paid to a banker or other person for realising interest on securities

Only for interest on securities. Dividend is no longer covered. The sum must be reasonable.

Family pension deduction, section 202(1) regime (section 93(1)(d)(i))

Lower of (1/3 × family pension) and ₹25,000

Applies where tax is computed under section 202(1).

Family pension deduction, any other case (section 93(1)(d)(ii))

Lower of (1/3 × family pension) and ₹15,000

Family pension is a regular monthly amount paid by the employer to a family member after the employee's death.

General expenses (section 93(1)(e))

Allowed if revenue in nature and wholly and exclusively for earning the income

Capital expenditure is not allowed.

Dividend and specified fund units (section 93(2))

Deduction = nil

Covers dividend, income from specified mutual fund units and specified UTI company units. No interest deduction is available from 1-4-2026.

Winnings (section 94(4))

Deduction = nil

Applies to lotteries, crosswords, races, card games, other games, gambling, betting. Section 94(5) exempts the owner of race horses for the activity of owning and maintaining them.

Amounts not deductible (section 94(1))

Personal expenses; interest payable outside India without tax paid or deducted; salary payable outside India without tax paid or deducted

Tax under Chapter XIX-B.

How to solve Deductions and Disallowances under Other Sources questions

1. 1List each receipt and classify it: interest on securities, family pension, dividend, winnings, or other.
2. 2Check whether it is taxable under this head. Drop anything exempt or belonging to another head.
3. 3For each receipt, find the specific deduction in section 93(1): commission, family pension limit, or general expense.
4. 4Apply the nil-deduction rules: dividend and specified fund units under section 93(2), and winnings under section 94(4).
5. 5Test every expense for capital nature, personal nature, and the wholly-and-exclusively condition. Reject those that fail.
6. 6Check the section 94(1) bars for payments outside India without tax paid or deducted.
7. 7Compute each net figure, add them, and show the total as income from other sources.

Quickest way: Receipt-by-receipt table in your answer

Common mistakes in Deductions and Disallowances under Other Sources

• Deducting collection commission against dividend.

  Older text allowed commission on dividend and interest.

  Fix: From 1-4-2026 the commission deduction is for interest on securities only. Dividend gets no deduction.

• Deducting interest on money borrowed to buy shares from dividend income.

  Students remember the old 20% interest limit.

  Fix: Section 93(2) now allows no deduction on dividend income.

• Taking the full one-third of family pension without the cap.

  Students forget the rupee ceiling.

  Fix: Always take the lower of one-third and ₹25,000 or ₹15,000, depending on the regime.

• Using the ₹25,000 cap in every case.

  Students ignore the regime condition.

  Fix: ₹25,000 applies where tax is computed under section 202(1). In any other case the limit is ₹15,000.

• Deducting expenses from lottery or betting winnings.

  Students apply the general expense rule.

  Fix: Section 94(4) bars all related deductions. Only the race horse owner's activity of owning and maintaining horses is outside this bar.

• Allowing capital or personal expenses as deductions.

  Students look only at whether the expense was incurred.

  Fix: Apply the test: not capital, wholly and exclusively for earning the income, and not personal.

Worked examples