Section 94 · Computation of total income
Section 94 of the Income-tax Act, 2025 — Amounts Not Deductible from Income from Other Sources
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 94, Income-tax Act 2025
94. (1) Irrespective of anything contained in section 93, the following amounts
shall not be deductible in computing the income of any assessee chargeable
under the head “Income from other sources”:—
(a) any personal expenses of the assessee; or
(b) any interest chargeable under this Act, payable outside India, on which
tax has not been paid or deducted under Chapter XIX-B; or
(c) any payment chargeable under the head “Salaries”, if it is payable outside
India, unless tax has been paid or deducted under Chapter XIX-B.
(2) The provisions of sections 29, 35(b)(i), and 36 shall apply in computing the
income chargeable under the head “Income from other sources” as they apply in
computing the income chargeable under the head “Profits and gains of business
or profession”.
(3) For an assessee, being a foreign company, the provisions of section 59 shall apply
in computing the income chargeable under the head “Income from other sources”,
as they apply in computing the income chargeable under the head “Profits and gains
of business or profession”.
10c. Substituted by the Finance Act, 2026, w.e.f. 1-4-2026. Prior to its substitution, sub-section
(2) read as under :
“(2) In respect of—
(a) dividend income of the nature referred to in section 2(40)(f), no deduction shall be
allowed;
(b) any other dividend income [other than in clause (a)], or income from units of a
Mutual Fund specified under Schedule VII (Table: Sl. No. 20 or 21) or income
from units of a specified company as referred to in section 2(h) of the Unit Trust of
India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002), only deduction
allowed shall be interest expense which, for any tax year, shall be limited to 20% of
such income (included in the total income for that year, without deduction under
this section).”
(4) In computing the income from winnings from lotteries, crossword puzzles, races
including horse races, card games and other games of any sort, or from gambling
or betting of any form or nature, no deduction for any expenditure or allowance
related to such income shall be allowed under this Act.
(5) Sub-section (4) shall not apply in computing the income of an assessee, being the
owner of horses maintained for running in horse races, from the activity of owning
and maintaining such horses.
(6) For the purposes of this se
In plain language
What Section 94 says in plain English
Under the Income-tax Act, 2025, income you earn that does not fit into salary, house property, business/profession or capital gains falls under the residual head "Income from Other Sources" (Sections 92 and 93 deal with what is taxable and what expenses you can claim). Section 94 is the "brake" — it lists the expenses and amounts you are not allowed to deduct even if you otherwise think they relate to that income. It is the exact successor of Section 58 of the old Income-tax Act, 1961, re-drafted in simpler language and effective from 1 April 2026.
The core idea: Section 93 gives you deductions with one hand; Section 94 takes some back with the other. It opens with the words "irrespective of anything contained in section 93", meaning Section 94's disallowances override any deduction Section 93 might have permitted.
The amounts that are NOT deductible — Section 94(1)
- Personal expenses of the assessee — anything spent for personal, household or private purposes cannot be set off against other-sources income. Only expenditure genuinely incurred to earn the income qualifies.
- Interest payable outside India on which tax has not been paid or deducted at source under Chapter XIX-B (the TDS chapter). If you owe interest to a foreign party and did not deduct/pay TDS, you lose the deduction.
- Salary payable outside India ("Salaries" head payments) unless tax has been paid or deducted under Chapter XIX-B. Same TDS-compliance logic as interest.
Winnings, lotteries and gambling — Section 94(4): the big one
No expenditure, no allowance, no set-off is permitted against winnings from lotteries, crossword puzzles, races (including horse races), card games, other games of any sort, gambling or betting of any form. This means such winnings are taxed on a gross basis. You cannot deduct the cost of lottery tickets, entry fees, travel, or losses. These winnings are also taxed at the special flat rate (30% plus surcharge and cess, with no basic exemption limit and no Chapter VIII deductions), reinforced by the special-rate provisions of the 2025 Act.
The horse-race owner exception — Section 94(5)
There is one carve-out. Section 94(5) says the blanket disallowance in 94(4) does not apply to a person who is the owner of horses maintained for running in horse races, in respect of the activity of owning and maintaining such horses. Such an owner is treated more like a business — they can deduct the genuine cost of maintaining the horses (stabling, training, upkeep) against income from that activity, and any resulting loss gets special loss-treatment. Section 94(6) supplies the definition of "horse race".
Borrowing business rules — Section 94(2) and 94(3)
Section 94(2) imports certain business-income provisions into the other-sources computation: Section 29 (how business income is computed), Section 35(b)(i) and Section 36 apply to income from other sources the same way they apply to "Profits and gains of business or profession". Section 94(3) applies the provision equivalent to old Section 59 (deemed income where a deduction/loss allowed earlier is later recovered) to this head as well.
Who it applies to
- Everyone with other-sources income — individuals, HUFs, firms, companies — who tries to claim expenses against it.
- People with foreign payments (interest or salary paid abroad) who must ensure TDS compliance to keep the deduction.
- Anyone with lottery/betting/gambling winnings — deductions are simply off the table.
Practical implications
- If you win a lottery of ₹10 lakh, tax is on the full ₹10 lakh — you cannot reduce it by the tickets you bought all year.
- Always deduct TDS on cross-border interest/salary before claiming it, or the whole amount is disallowed.
- Keep personal and income-earning expenses strictly separate; mixing them invites disallowance in scrutiny.
- Genuine horse-race owners retain a legitimate deduction route — treat it with proper books and vouchers.
💡 Example
Example 1 — Lottery winnings (no deduction): Rohan buys lottery tickets worth ₹40,000 over the year and wins a prize of ₹5,00,000. Under Section 94(4) he cannot deduct the ₹40,000 spent on tickets. His entire ₹5,00,000 is taxed at the flat special rate of 30% = ₹1,50,000, plus 4% health & education cess = ₹1,56,000. The prize distributor deducts TDS at 30% before paying him, so no basic exemption or Chapter VIII-A deductions apply.
Example 2 — Foreign interest without TDS: A company earns other-sources income and pays ₹8,00,000 interest to a lender based in Dubai but forgets to deduct/pay tax under Chapter XIX-B. Under Section 94(1)(b), the full ₹8,00,000 is disallowed as a deduction, increasing taxable income by ₹8,00,000. Had it deducted TDS correctly, the ₹8,00,000 would have been fully deductible.
A short story: Meera, a schoolteacher, won ₹1 lakh on a game show. Thrilled, she assumed she could subtract the ₹15,000 she had spent on travel and hotel to attend the shoot. Her CA gently explained Section 94(4): winnings from "games of any sort" allow zero deductions, so tax applied to the full ₹1 lakh. Her friend Vikram, however, owns two race horses; because of the Section 94(5) exception, his stable and training costs of ₹6 lakh remained fully deductible against his horse-owning income — a reminder that the law treats a business-like activity differently from a one-off flutter.
| Sub-section | What it covers | Effect / Deductibility |
|---|
| 94(1)(a) | Personal expenses of the assessee | Not deductible |
| 94(1)(b) | Interest payable outside India, no TDS under Chapter XIX-B | Not deductible |
| 94(1)(c) | Salary payable outside India, no TDS under Chapter XIX-B | Not deductible |
| 94(2) | Applies Sections 29, 35(b)(i), 36 to other-sources income | Business-computation rules borrowed |
| 94(3) | Deemed income on recovery (like old Section 59) | Recovered amounts taxed |
| 94(4) | Lotteries, puzzles, races, card games, gambling, betting winnings | Zero deduction; taxed on gross, flat 30% + cess |
| 94(5) | Owner of horses maintained for horse races | Exception — genuine maintenance costs deductible |
| 94(6) | Definition of "horse race" | Interpretation clause |
Related sections
Section 92 — Income chargeable under Income from Other Sources Section 93 — Deductions allowed from Income from Other Sources Section 58 (1961 Act) — Old equivalent, Amounts not deductible Section 36 — Other business deductions (borrowed via 94(2)) Section 29 — Computation of business income (applied by 94(2)) Chapter XIX-B — TDS provisions governing foreign interest/salary
Frequently asked questions
Can I deduct the cost of lottery tickets against my lottery winnings?
No. Section 94(4) expressly disallows any expenditure or allowance against winnings from lotteries, gambling, betting, card games or races. Such winnings are taxed on the full gross amount at the flat special rate of 30% plus cess.
What is the old-law equivalent of Section 94 of the 2025 Act?
Section 94 replaces Section 58 of the Income-tax Act, 1961. The substance is largely the same — a list of amounts not deductible from Income from Other Sources — but re-written in simpler, consolidated language, effective 1 April 2026.
Why is interest paid outside India disallowed?
Under Section 94(1)(b), interest payable outside India is deductible only if tax has been deducted or paid on it under Chapter XIX-B (TDS). This ensures the payer complies with withholding-tax rules; failure to deduct TDS results in complete disallowance of the interest.
Are horse-race owners really treated differently from other gamblers?
Yes. Section 94(5) is a specific exception: an owner of horses maintained for running in races can deduct genuine maintenance and upkeep costs against income from owning and maintaining such horses, unlike ordinary lottery or betting winnings which allow no deductions.
Can I claim personal expenses if they are somehow linked to my other income?
No. Section 94(1)(a) disallows all personal expenses of the assessee. Only expenditure incurred wholly and exclusively to earn the income (allowed under Section 93) qualifies; anything personal in nature is disallowed.
Does Section 94 apply to companies and firms too?
Yes. Section 94 applies to any assessee — individual, HUF, firm or company — computing income under the head Income from Other Sources. Section 94(3) even brings in deemed-income treatment on later recovery of amounts previously deducted.
Do I get the basic exemption limit on lottery winnings?
No. Winnings covered by Section 94(4) are taxed at a flat 30% (plus surcharge if applicable and 4% cess) without the benefit of the basic exemption limit or Chapter VIII-A deductions, and TDS is deducted at source before payment.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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