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CA Final · Direct Tax Laws & International Taxation · Incomes which do not form part of Total Income

Meera Textiles Ltd earned Rs 6,00,000 of income that does not form part of its total income under Schedule III of the Income-tax Act, 2025, and its conditions are satisfied. It also incurred Rs 40,000 of expenditure directly relating to this income. Under section 14 of the Act, how is this expenditure treated in computing its total income?

The Rs 40,000 is not deductible. Section 14(1) denies any deduction for expenditure incurred in relation to income that does not form part of total income, regardless of how large the exempt income is or when it arises.

  1. AIt is allowed as a deduction because the exempt income is Rs 6,00,000, which is higher than the expenditure
  2. BIt is allowed only to the extent of 50% of the exempt income
  3. CIt is allowed in the following tax year when the exempt income is taxed
  4. DIt is not allowed as a deduction, because it relates to income not forming part of total incomeCorrect

Explanation

Section 14(1) says that, irrespective of anything contrary in the Act, no deduction is allowed for expenditure incurred in relation to income that does not form part of total income. The size of the exempt income is irrelevant. So the Rs 40,000 directly related expenditure is disallowed.

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