Sec. 14A disallowance: CBDT specifies new method for disallowance computation

CBDT specifies new method for disallowance u/s 14A subject to total amount calculated as per new method shall not exceed the total expenditure claimed by the assessee

Refer extract of amendment notification:


INCOME-TAX (FOURTEENTH AMENDMENT) RULES, 2016 – AMENDMENT IN RULE 8D

NOTIFICATION NO. SO 1949(E) [F.NO.370142/7/2016-TPL]DATED 2-6-2016
In exercise of the powers conferred by section 295 read with sub-section (2) of section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—

1. (1) These rules may be called the Income–tax (14th Amendment) Rules, 2016.

     (2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules 1962, in rule 8D,—

(I) for sub-rule (2), the following sub-rule shall be substituted, namely:—

“(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—
(i) the amount of expenditure directly relating to income which does not form part of total income; and
(ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income:

Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.”;

(II) sub-rule (3) shall be omitted.

After amendment Rule 8D of Income Tax Rule,1962 will be read as under:


[Method for determining amount of expenditure in relation to income not includible in total income.

8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with—

(a)   the correctness of the claim of expenditure made by the assessee; or
(b)   the claim made by the assessee that no expenditure has been incurred,
in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :—
(i)   the amount of expenditure directly relating to income which does not form part of total income;
(ii)   in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :—
A × B
  C  
Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ;
    B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ;
    C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ;
(iii)   an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

“(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—
(i) the amount of expenditure directly relating to income which does not form part of total income; and
(ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income:
Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.”;

(3) For the purposes of this rule, the “total assets” shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.



Section – 14A, Income-tax Act, 1961 – FA, 2016[Expenditure incurred in relation to income not includible in total income


 14A. [(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.]

[(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed(Rule 8D), if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :]

[Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]

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