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Clarification regarding disallowance of expenses under section 14A

Written By Admin on Monday, 24 March 2014 | Monday, March 24, 2014



Clarification regarding disallowance of expenses under section 14A of the Income-tax Act in cases where corresponding exempt income has not been earned during the FY 


The Finance Act, 2001 introduced Section 14A of the Act with retrospective effect from 1.4.1962 to provide that no deduction shall be allowed in respect of expenditure incurred relating to income which does not form part of total income under the Act. The Board was reported of a controversy that had arisen as to whether disallowance can be made by invoking section 14A of the Act even in those cases where no income has been earned by an assessee, which has been claimed as exempt during the financial year.

After due consideration the Board has, through this circular, clarified that expenses which are relatable to earning of exempt income have to be considered for disallowance irrespective of the fact whether such income has been earned during the financial year or not. In effect, even where the taxpayer has not earned any exempt income in a particular year, Section 14A along with Rule 8D provides for disallowance of the expenditure.

[Circular No. 5/2014, dated 11-2-2014]
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