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

Under section 14(3) of the Income-tax Act, 2025, an assessee incurs expenditure in a tax year in relation to exempt income that will accrue only in a later tax year. What is the position for the year of expenditure?

The disallowance still applies. Section 14(3) says the section covers expenditure incurred in a tax year in relation to income not forming part of total income, even if that income has not accrued, arisen or been received during that year.

  1. AThe expenditure is deductible now and the later exempt income is then taxed
  2. BThe expenditure is carried forward and allowed in the year the exempt income arises
  3. CThe disallowance applies even though the exempt income has not accrued, arisen or been received in that yearCorrect
  4. DThe disallowance applies only in the year the exempt income is received

Explanation

Section 14(3) extends the section to expenditure incurred in a tax year in relation to exempt income even where that income has not accrued, arisen or been received in that year. Timing of the income therefore does not rescue the deduction.

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