5. Sec. 40A : Amount Expressly Disallowed As Deduction

In the case of any assessee, the following expenses are expressly disallowed under Section-40(a)

1.       TDS Default Pertaining Any Sum (Other Than Salary) Payable Outside India Or Payable To Non-Resident/Foreign Company [SEC. 40(a)(i)]

2.         TDS Default Pertaining To Any Sum Payable To A Resident [SEC. 40(a)(ia)]

3.         Default Pertaining To Non-Deduction/Non-Deposit Of Equalisation Levy [SEC. 40(a)(ib)], Applicable From The Assessment Year 2017-18] –

4.         Fringe Benefits Tax (FBT) –

5.         Income- Tax [SEC. 40(a)(ii)] –

6.         Wealth-Tax [SEC. 40(a)(iia)] –

7.         Certain Fee, Charge, Etc. Paid Bya State Government Undertaking To The State Government [SEC. 40(a)(iib), Applicable From The Assessment Year 2014-15] –

8.         Salary Payable Outside 1ndia Without Tax Deduction [SEC. 40(a)(iii) –

9.         Provident Fund Payment Without TDS (Tax Deduction At Source) [SEC. 40(a)(iv)]

10.       Tax On Perquisite Paid By The Employer [SEC. 40(a)(v)] –

11.     TDS Default Pertaining Any Sum (Other Than Salary) Payable Outside India Or Payable To Non-Resident/Foreign Company [SEC. 40(a)(i)] –

1.      TDS DEFAULT PERTAINING ANY SUM (OTHER THAN SALARY) PAYABLE OUTSIDE INDIA OR PAYABLE TO NON-RESIDENT/FOREIGN COMPANY [SEC. 40(a)(i)]

The provisions of disallowance of section 40(a)( from the assessment year 2015-16 are given below —

If the following conditions are satisfied, the payer is supposed to deduct tax at source —

a.         the amount payable is interest, royalty, technical fees or any other sum (but not salary);

b.         in the hands of the recipient, it is chargeable to tax in India; and

c.         the aforesaid sum is payable outside India or to a non-resident/foreign company.

If these above conditions are satisfied, tax is deductible under the Act.

Disallowance Of Expenditure Under [ Section 40(a)(i)] –

if TDS default is committed in respect of payment! credit given to a foreign company/non-resident, the expenditure is disallowed in the hands of payer under section 40(a)(i). These provisions are given below —

TDS Default

Is such expenditure  deductible in the
current previous year

Is such expenditure deductible in any subsequent previous year

Case-1 – Tax is deductible but not deducted.

100 % of such
expenditure is disallowed in the current year

If tax is deducted in any subsequent year, the expenditure (which is disallowed in the current year) will be deducted in the year in which TDS will be deposited by the assessee with the Government

Case-2 – Tax is deductible (and is so deducted) during the current financial year but it is not deposited on or before the due date of submission of return of income under Section- 139(1)

100 % of such
expenditure is disallowed in the current year

If tax is deposited with the Government after the due date of submission of return of income, the expenditure (which is disallowed in the current year) will be deductible in that year in which tax will be deposited

Note

If recipient is a non-resident or foreign company and TDS default is committed by the payer, 100% of the expenditure is disallowed in the hands of payer, as given above. Similar rule is applicable if recipient is a resident and TDS default is committed (however, not 100% but 30% expenditure is disallowed). The rule pertaining to TDS default (in case recipient is resident) is given by section 40(a)(ia)

2.      TDS DEFAULT PERTAINING TO ANY SUM PAYABLE TO A RESIDENT [SEC. 40(a)(ia)] –

In respect of the following payments / credit to a resident, tax is deductible under Chapter XVII-B of the Income-tax Act ( i.e., Sections 192 to 206AA ) —

1.

Salary

8.

Payment in respect of life insurance policy

2.

Interest

9.

Payment in respect of deposits under NSS

3.

Dividends

10.

Payment on account of certain units

4.

Winnings from lottery or crossword puzzles

11.

Rent

5.

Winnings from horse races

12.

Payment on purchase of immovable property

6.

Payments to contractors

13.

Technical/professional fees, royalty, fees to a part time director

7.

Commission or brokerage (including insurance commission)

14.

Payment of compensation on acquisition of immovable property

Disallowance of above Expenditure from the Assessment year 2015-16 Under Section-40(a)(ia) –

If TDS default is committed in respect of the above payment/credit given to a resident, 30% of such expenditure is disallowed in the hands of payer under section 40(a)(ia).

These provisions are given below —

TDS default

Is such expenditure deductible in the
current previous year

Is such expenditure deductible in any subsequent previous year

Case 1 - Tax is deductible but not deducted

30% of such expenditure is disallowed in the current year

If tax is deducted in any subsequent year, the expenditure (which is disallowed in the current year) will be deducted in the year in which TDS will be deposited by the assessee with the Government

Case 2 - Tax is deductible (and is so deducted) during the current financial year but it is not deposited on or be- fore the due date of submission of return of income under section 139(1)

30% of such expenditure is disallowed in the current year

If tax is deposited with the Government after the due date of submission of return of income, the expenditure (which is disallowed in the current year) will be deductible in that year in which tax will be deposited

 

The following points should be noted –

1.         If TDS default (Case 1 or Case 2) pertaining to payment/credit given to a resident is committed, 30% of such expenditure becomes a non-deductible expenditure under section 40(a)(ia) with effect from the assessment year 2015-16. Up to the assessment year 2014-15, 100% of such expenditure was not deductible.

2.         If TDS default pertaining to salary payment to a resident in India is committed, disallowance provisions of section 40(a)(ia) are applicable only with effect from the assessment year 2015-16. Salary TDS default were not covered by provisions of section 40(a)(ia) up to the assessment year 2014-15.

3.      DEFAULT PERTAINING TO NON-DEDUCTION/NON-DEPOSIT OF EQUALISA TION LEVY [SEC. 40(a)(ib)], APPLICABLE FROM THE ASSESSMENT YEAR 2017-18] –

Any consideration paid or payable (to a nonresident for a specified service on which equalisation levy is applicable) will be disallowed from the assessment year 2017-18 in the following cases—

1. Equalisation levy is deductible and such levy has not been deducted.

2. Equalisation levy is deductible (and it is so deducted) but it is not deposited [on or before the due date of submission of return of income under section 139(1)].

If, however, equalisation levy is deducted/deposited in a subsequent year, the aforesaid consideration shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid.

SECURITIES TRANSACTION TAX [SEC. 40(a)(ib)] –

The provisions ai-e given below—

Disallowance of securities transaction tax -
Under Section 40(a)(ib)

Rebate Under Section 88E

For the assessment years 2005-06 to 2008-09

Securities transaction tax is not deductible

Rebate under section 88E is available

From the assessment year 2009-10 onwards

Disallowance under section 40(a)(ib) has been omitted and securities transaction tax will be deductible as business expenditure under section 36(1)(xv)

No rebate

4.      FRINGE BENEFITS TAX –

Any sum paid on account of fringe benefits tax is not deductible.

5.      INCOME- TAX [SEC. 40(a)(ii)] –

Any sum paid on account of income-tax (i.e., any rate or tax levied on the profits or gains of any business or profession) is not deductible. Similarly, any interest/penalty/
fine for non-payment or late payment of income-tax is not deductible. This rule is applicable whether income- tax is payable in India or outside India.

•          Tax of a non-resident professional borne by the Indian payer is nothing but part of professional fees for the payer. It is deemed as income of non-resident professional. It cannot be disallowed in the hands of the payer as payment of “income-tax” —

6.      WEALTH-TAX [SEC. 40(a)(iia)] –

Any sum paid on account of wealth-tax under the Wealth-tax Act, 1957, or tax of a similar nature chargeable under any law outside India is not deductible.

7.      CERTAINFEE, CHARGE, ETC. PAID BYA STATE GOVERNMENT UNDERTAKING TO THE STATE GOVERNMENT [SEC. 40(a)(iib), APPLICABLE FROM THE ASSESSMENT YEAR 2014-15] –

 Any amount –

a.         paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or

b.         which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government, is not allowed as deduction from the assessment year 2014-15.

• For this purpose, a State Government undertaking includes—

a.         a corporation established by or under any Act of the State Government;

b.         a company in which more than 50 per cent of the paid-up equity share capital is held by the State Government;

c.         a company in which more than 50 per cent of the paid-up equity share capital is held by the entity referred — to in (a) or (b) (whether singly or taken together);

d.         a company or corporation in which the State Government has the right to appoint the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

e.         an authority, a board or an institution or a body established or constituted by or under any Act of the State Government or owned or controlled by the State Government.

8.      SALARY PAYABLE OUTSIDE 1NDIA WITHOUT TAX DEDUCTION [SEC. 40(a)(iii) –

Section 40(a)(iii) is applicable if the following conditions are satisfied—

1.         The payment is chargeable under the head “Salary” in the hands of the recipient.

2.         It is payable—

a.         outside India (to any person resident or non-resident); or

b.         in India to a non-resident.

3.         Tax has not been paid to the Government nor deducted at source under the Income-tax Act.

If the aforesaid conditions are satisfied, then the payment is not allowed as deduction.

9.      PROVIDENT FUND PAYMENT WITHOUT TDS (TAX DEDUCTION AT SOURCE) [SEC. 40(a)(iv)]

Any payment to a provident fund (or other fund established for the benefit of employees of the assessee) is not deductible if the assessee has not made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head “Salaries”.

10.    TAX ON PERQUISITE PAID BY THE EMPLOYER [SEC. 40(a)(v)] –

The provisions of section 40(a)(v) are given below—

1.         The employer provides non-monetary perquisites to employees.

2.         Tax on non-monetary perquisites is paid by the employer.

3.         The tax so paid by the employer is not taxable in the hands of employees by virtue of section 10(10CC).

4.         While calculating income of the employer, the tax paid by the employer on non-monetary perquisites is not deductible under section 40(a)(v).

 

 

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SEC. 35 : EXPENDITURE ON SCIENTIFIC RESEARCH 

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RESTRICTION ON DEDUCTIONS

[SECTION 115JB]  MINIMUM ALTERNATIVE TAX (MAT)

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