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

Suresh Ltd incurred Rs 50,000 of expenditure during the tax year in relation to an investment whose exempt income has not accrued, arisen or been received in that year. Under section 14 of the Income-tax Act, 2025, what is the treatment of this expenditure?

The expenditure is not allowed. Section 14(3) applies the bar on deduction even where the exempt income has not accrued, arisen or been received in the tax year in which the expenditure is incurred.

  1. AAllowed, since no exempt income arose in the year
  2. BAllowed in the year the exempt income is later received
  3. CAllowed only if the exempt income is received within three years
  4. DNot allowed, as section 14 applies even if the exempt income did not accrue or arise in the yearCorrect

Explanation

Section 14(3) states that, irrespective of anything contrary in the Act, section 14 applies where expenditure is incurred in a tax year in relation to income not forming part of total income, even though that income has not accrued, arisen or been received in that year. So the deduction is barred. The other options invent a deferral or time condition not found in the section.

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