Sec. 40 (a)(ia)
This query is : Resolved
06 December 2010
Whether Sec. 40 (a)(ia)is only applicable in the case of indirect expenses or not????
Thanks in advance.
With regards
Sreekumar.N
Thanks in advance.
With regards
Sreekumar.N
07 December 2010
What do you mean by indirect exp under sec 40(a)(ia). In case of tax laws , you have to apply the actual provision not your own observation. Under this section nothing has been said about indirect exp.
07 December 2010
Dear Sri kumar
Sec 40 (a) (ia) speaks specifically about exp which are liable to TDS. TDS is also applicable to contractor payment and other payment also.
So there is no specific point of indirect expenditure and this is rightly said by Mr Shailesh.
Sec 40 (a) (ia) speaks specifically about exp which are liable to TDS. TDS is also applicable to contractor payment and other payment also.
So there is no specific point of indirect expenditure and this is rightly said by Mr Shailesh.
07 December 2010
Agreed with experts
07 December 2010
TDS And 40 (a) (ia) disallowance
Sir As the provisions of Sec 40 (a) (ia) are applicable only to items covered by Sec 30 to 38 and the profit us 28 is arrived after allowing the direct costs expenditure us 145 on the basis of books regularly maintained by the Assesse - Whether direct costs expenditure incurred without TDS are disallowable us 40 (a) (ia)?
Sir As the provisions of Sec 40 (a) (ia) are applicable only to items covered by Sec 30 to 38 and the profit us 28 is arrived after allowing the direct costs expenditure us 145 on the basis of books regularly maintained by the Assesse - Whether direct costs expenditure incurred without TDS are disallowable us 40 (a) (ia)?
07 December 2010
Direct cost expenditure i.e. expenses incurred to earn that income such as purchase cost of materials, wages, other direct expenses
08 December 2010
No TDS is required to deducted on purchase cost of material, further only salary paid outside india or to non resident without deducting TDS or after deducting TDS not deposited is disallowed (refer sec 40(a)(iii)). That means salary paid to resident in India without deducting TDS is allowed as deduction. Because sec 40(a)(ia) do not cover salary expenditure.
08 December 2010
Sir,
What about other direct expenses such as in the case of an advertising firm engaged in hoarding display incurred display charges such as hoarding rental, ground rent, Flex fitting charges, Display charges made by sub contractors etc.
What about other direct expenses such as in the case of an advertising firm engaged in hoarding display incurred display charges such as hoarding rental, ground rent, Flex fitting charges, Display charges made by sub contractors etc.
23 July 2025
**Section 40(a)(ia) – Disallowance of Expenses for Non-Compliance with TDS Provisions**
Under **Section 40(a)(ia)** of the Income Tax Act, any **expenses** that are **subject to TDS (Tax Deducted at Source)** but **TDS is not deducted or deposited** in respect of those expenses, will be **disallowed** while computing the total income of the taxpayer.
### **Understanding the Applicability of Section 40(a)(ia)**
1. **Scope of Section 40(a)(ia):**
* The provisions of **Section 40(a)(ia)** apply to **all expenses** that are subject to **TDS** under various sections of the Income Tax Act.
* The term "expenses" here includes **both direct and indirect expenses** if they are subject to **TDS**.
2. **Direct vs Indirect Expenses:**
* In the context of **Section 40(a)(ia)**, there is no distinction between **direct** or **indirect expenses**. If an expense is subject to TDS, and TDS is not deducted or deposited, it will be disallowed under this section.
* **Direct Expenses** include expenses that are directly related to earning the income, such as **purchase of materials**, **wages**, and **direct labour costs**.
* **Indirect Expenses** are expenses that are not directly tied to the production process but still essential for business operations, such as **rent**, **advertising costs**, **office expenses**, etc.
### **Key Clarifications Based on Your Query:**
1. **Direct Expenses Subject to TDS:**
* In your case of an **advertising firm** engaged in **hoarding display**, the expenses such as:
* **Hoarding rental**
* **Ground rent**
* **Flex fitting charges**
* **Display charges made by sub-contractors**
are **direct expenses** incurred for business operations.
However, if **TDS is applicable on these payments** (for example, under **Section 194I** for rent or **Section 194J** for professional services), **TDS must be deducted** and **deposited** on these payments, or the corresponding expenses will be **disallowed** under **Section 40(a)(ia)**.
2. **Section 40(a)(ia) and TDS on Direct Expenses:**
* If any of the direct expenses (like **hoarding rental** or **sub-contractor payments**) are subject to **TDS**, and the TDS is not deducted or deposited, those **direct expenses** will be disallowed under **Section 40(a)(ia)**.
For example:
* **Hoarding rental** may be subject to **TDS under Section 194-I** (Rent). If the **TDS is not deducted or deposited** within the due date, the rent paid would be **disallowed** under **Section 40(a)(ia)**.
* Similarly, payments to **sub-contractors** could be subject to **TDS under Section 194C** (Contractor Payments). If TDS is not deducted, the amount paid to sub-contractors will be **disallowed** under **Section 40(a)(ia)**.
3. **Salary Payments:**
* Section **40(a)(ia)** specifically **does not apply to salary payments**. However, salary payments to **non-residents** or **outside India** may be disallowed under **Section 40(a)(iii)** if TDS is not deducted and deposited.
### **In Summary:**
* **Section 40(a)(ia)** applies to **both direct and indirect expenses**, provided they are subject to **TDS**.
* If **TDS is applicable** to any expense and the **TDS is not deducted or deposited** as per the due date, the **entire payment** made for that expense will be **disallowed** under **Section 40(a)(ia)**.
* **Direct expenses** such as **purchase of materials**, **wages**, **advertising costs**, and **sub-contractor payments** will be **disallowed** if TDS is not deducted and deposited in time.
* **Salary payments** to residents in India are generally **not subject to Section 40(a)(ia)** (unless paid to non-residents or outside India).
Therefore, for your **advertising firm** example, payments like **hoarding rental** or payments to **sub-contractors** would be disallowed under **Section 40(a)(ia)** if they are subject to TDS, and the TDS is not deducted or deposited.
Under **Section 40(a)(ia)** of the Income Tax Act, any **expenses** that are **subject to TDS (Tax Deducted at Source)** but **TDS is not deducted or deposited** in respect of those expenses, will be **disallowed** while computing the total income of the taxpayer.
### **Understanding the Applicability of Section 40(a)(ia)**
1. **Scope of Section 40(a)(ia):**
* The provisions of **Section 40(a)(ia)** apply to **all expenses** that are subject to **TDS** under various sections of the Income Tax Act.
* The term "expenses" here includes **both direct and indirect expenses** if they are subject to **TDS**.
2. **Direct vs Indirect Expenses:**
* In the context of **Section 40(a)(ia)**, there is no distinction between **direct** or **indirect expenses**. If an expense is subject to TDS, and TDS is not deducted or deposited, it will be disallowed under this section.
* **Direct Expenses** include expenses that are directly related to earning the income, such as **purchase of materials**, **wages**, and **direct labour costs**.
* **Indirect Expenses** are expenses that are not directly tied to the production process but still essential for business operations, such as **rent**, **advertising costs**, **office expenses**, etc.
### **Key Clarifications Based on Your Query:**
1. **Direct Expenses Subject to TDS:**
* In your case of an **advertising firm** engaged in **hoarding display**, the expenses such as:
* **Hoarding rental**
* **Ground rent**
* **Flex fitting charges**
* **Display charges made by sub-contractors**
are **direct expenses** incurred for business operations.
However, if **TDS is applicable on these payments** (for example, under **Section 194I** for rent or **Section 194J** for professional services), **TDS must be deducted** and **deposited** on these payments, or the corresponding expenses will be **disallowed** under **Section 40(a)(ia)**.
2. **Section 40(a)(ia) and TDS on Direct Expenses:**
* If any of the direct expenses (like **hoarding rental** or **sub-contractor payments**) are subject to **TDS**, and the TDS is not deducted or deposited, those **direct expenses** will be disallowed under **Section 40(a)(ia)**.
For example:
* **Hoarding rental** may be subject to **TDS under Section 194-I** (Rent). If the **TDS is not deducted or deposited** within the due date, the rent paid would be **disallowed** under **Section 40(a)(ia)**.
* Similarly, payments to **sub-contractors** could be subject to **TDS under Section 194C** (Contractor Payments). If TDS is not deducted, the amount paid to sub-contractors will be **disallowed** under **Section 40(a)(ia)**.
3. **Salary Payments:**
* Section **40(a)(ia)** specifically **does not apply to salary payments**. However, salary payments to **non-residents** or **outside India** may be disallowed under **Section 40(a)(iii)** if TDS is not deducted and deposited.
### **In Summary:**
* **Section 40(a)(ia)** applies to **both direct and indirect expenses**, provided they are subject to **TDS**.
* If **TDS is applicable** to any expense and the **TDS is not deducted or deposited** as per the due date, the **entire payment** made for that expense will be **disallowed** under **Section 40(a)(ia)**.
* **Direct expenses** such as **purchase of materials**, **wages**, **advertising costs**, and **sub-contractor payments** will be **disallowed** if TDS is not deducted and deposited in time.
* **Salary payments** to residents in India are generally **not subject to Section 40(a)(ia)** (unless paid to non-residents or outside India).
Therefore, for your **advertising firm** example, payments like **hoarding rental** or payments to **sub-contractors** would be disallowed under **Section 40(a)(ia)** if they are subject to TDS, and the TDS is not deducted or deposited.
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