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CS Executive · Tax Laws and Practice · Incomes which do not form part of Total Income

Prakash Traders Ltd earns Rs 4,00,000 of income that does not form part of total income and claims Rs 30,000 of expenditure relating to it. Its other expenses and income are unrelated. The Assessing Officer finds the claim correct from the accounts. What amount is disallowed under section 14 of the Income-tax Act, 2025 on the basis of section 14(1)?

Rs 30,000 is disallowed. Section 14(1) denies deduction of expenditure incurred in relation to income not forming part of total income. The Rs 4,00,000 exempt income is simply excluded, and accepting the accounts only removes the need for a prescribed method.

  1. ARs 30,000, the whole expenditure relating to the exempt incomeCorrect
  2. BRs 3,70,000, the exempt income less the expenditure
  3. CNil, as the officer accepted the claim
  4. DRs 4,00,000, the full exempt income

Explanation

Section 14(1) bars deduction of expenditure incurred in relation to exempt income, so the Rs 30,000 is disallowed. The exempt income itself is excluded from total income, not disallowed. Acceptance of the accounts under section 14(2) only means no prescribed method is needed; it does not allow the deduction.

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