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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), which statement correctly describes the rule in section 14(1) on expenditure relating to income that does not form part of total income?

Section 14(1) of the Income-tax Act, 2025 says that, despite anything contrary in the Act, no deduction is allowed when computing total income for expenditure incurred in relation to income that does not form part of total income. The bar is absolute and has no cap or receipt condition.

  1. ANo deduction is allowed for expenditure incurred in relation to income that does not form part of total incomeCorrect
  2. BSuch expenditure is allowed in full but only up to the amount of the exempt income
  3. CSuch expenditure is allowed only if the exempt income is actually received during the tax year
  4. DSuch expenditure is allowed as a deduction against any taxable income of the same assessee

Explanation

Section 14(1) begins with a non-obstante wording and bars any deduction for expenditure incurred in relation to income that does not form part of total income. The option allowing it up to the exempt income amount invents a cap that the section does not contain. The other two options also contradict the flat prohibition.

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