Section 14A Of Tax Act
Section 14A of the revenue enhancement Act, 1961 could be a legal provision that lays down the law in regard to expenses incurred by a taxpayer to earn an income that doesn’t form part of total income as per the provisions under the Act. In such cases, the actual expenditure might not be allowed as a deduction while computing taxpayer Gross Total Income. during this article, we briefly discuss the concept of disallowance of expenses under Section 14A of the Act.
Disallowance Of Expenses
The taxation department doesn’t levy taxes on certain incomes in India. Agricultural Income is an example of income that doesn’t fall within the ambit of tax. However, there’s a chance of taxes incurring expenses on such incomes, e.g., interest paid on loans taken to take a position in tax-free bonds or business shares.
Hence, for a protracted time, there has been a dispute between the officers of the tax department and therefore the taxpayers regarding the disallowance of the required expenditure. While the taxpayers are requesting the deduction of such spending, the IT department has stated that disallowance of expenses, because the income is entirely freed from tax and by deducting expenditure incurred on the income, will lead to reduced liabilities on non-taxable income. to unravel the dispute, the govt. of India has introduced Section 14A within the Act.
Applicability For Section 14A
This section applies when a private qualifies for the subsequent below-mentioned conditions:
Section 14A is applicable as extended as the assessee has made an investment to receive income that does not form a part of total income.
Section 14A is applicable if the assessee claims that expense has been incurred and therefore the Assessing Officer isn’t satisfied with the rightness of the claim of the assessee having regards to the accounts of the assessee.
Section 14A is applicable if an assessee claims that no expenditure has been incurred.
Requirements of Section 14A
The section 14A consists of the subsequent subsections are as follows:
Section 14A(1) of Revenue Enhancement
If the assessee has incurred expense for earning tax-free income, then subsection 1 of section 14A is applied.
Subsection 2 is applicable when the assessee claims the quantity incurred about exempt income.
Subsection 3 is when the assessee claims that there’s no expense incurred.
Section 14A(2) of the tax
Subsection 2 of Section 14A provides if an assessee claims that the expenditure incurred on exempt income then the Assessing Officer has to verify the rightness of this claims having regard the books of accounts of the assessee. The Assessing Officer must explain the expenditure within the books of accounts after verifying, if satisfied then the Assessing Officer shall disallow the expenses under section 14A. If the assessee’s claim doesn’t satisfy the Assessing Officer, then the taxpayer should report disapproval and proceed with the appliance of rule 8D for calculating the disallowance amount.
Section 14A(3) Of Revenue Enhancement
Subsection 3 of Section 14A pertains to if an assessee claims that the taxpayer has not incurred any payment on the tax-free income then Evaluating Officer can directly apply rule 8D to see the expenditure to be disallowed under section 14A. during this event, the Assessing Officer isn’t required to report any dissatisfaction.
Rule 8D Of Taxation
Rule 8D applies where the Assessing Officer, having considered the accounts of the assessee, isn’t satisfied within the below-mentioned events.
The claim made by the assessee regarding the amount of expense incurred on tax-free income.
The claim made by the taxpayer that no revenue has been incurred on exempt income for the prior year.
Rule 8D(2) – The expenditure incurred to earn the income not forming a part of total taxable income shall be reckoned within the following manner:
The amount of expenditure directly regarding income which doesn’t form a part of total income and,
An amount adequate to 1% of the typical monthly value of the investment, yielding exempt income, but not exceeding the particular expenditure claimed.
Post By Karthiga
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Yogita Yadav .i am a law student .p-B.A.LL.B. love to learn and research new things .
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