Section 14a & rule 8d-exempt income
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
12 January 2018
Dear ALL,
Please help
1. If there is dividend income in year then what exp a company has to show on investment so that exempt income not to be club.
2. If there is no Exempt Income still Section 14A & RULE 8D will apply ? still dis allowance will be made ?
TIA.
Please help
1. If there is dividend income in year then what exp a company has to show on investment so that exempt income not to be club.
2. If there is no Exempt Income still Section 14A & RULE 8D will apply ? still dis allowance will be made ?
TIA.
18 January 2018
Yes 14A and rule 8D will apply even if no exempt income.
Querist : Anonymous
Querist :
Anonymous
(Querist)
22 January 2018
what exp. we have to disallowed against such income... I. e STT etc or
23 July 2025
Let's unpack your questions on Section 14A and Rule 8D related to exempt income and disallowances:
1. If there is dividend income in the year, what expenses should the company show on investment so that exempt income is not clubbed?
Dividend income from domestic companies is exempt under Section 10(34) of the Income Tax Act.
Section 14A disallows expenses incurred to earn exempt income. So, the company must show expenses directly related to earning such exempt income.
Common examples of expenses related to investments (that generate exempt income) include:
Interest on borrowed funds used for acquiring investments.
Brokerage or commission paid for purchase or sale of shares.
Other direct expenses related to management of investments.
If these expenses are clearly identifiable and related only to taxable income, then only the expenses related to exempt income will be disallowed under Section 14A.
So to avoid disallowance, the company should maintain proper accounting to segregate expenses related to taxable income and exempt income.
2. If there is no exempt income, will Section 14A and Rule 8D still apply? Will disallowance be made?
According to CBDT circulars and judicial rulings, Section 14A and Rule 8D do apply even if no exempt income is earned in the year.
The logic is that the assessee may have incurred expenditure in relation to exempt income even if no exempt income is received in that particular year.
So, disallowance under Section 14A can still be made if the taxpayer incurs expenditure relating to exempt income, regardless of whether exempt income was earned or not.
3. What expenses need to be disallowed against exempt income? (e.g., STT, etc.)
Expenses directly or indirectly incurred to earn exempt income are subject to disallowance under Section 14A.
Typical disallowable expenses include:
Interest on borrowings used for acquiring investments yielding exempt income.
Brokerage or commission paid for purchase/sale of such investments.
Management or advisory fees related to such investments.
Repairs, maintenance, or other expenses related to investment assets.
STT (Securities Transaction Tax) is generally not disallowed under Section 14A as it is a tax on the transaction and not an expense incurred to earn exempt income.
However, expenses that are specifically related to earning exempt income will be disallowed.
Summary Table
Question Answer
Expenses to show to avoid exempt income clubbing Properly segregate expenses related to taxable income vs exempt income
Does Sec 14A & Rule 8D apply if no exempt income? Yes, disallowance can be made even if no exempt income in that year
Expenses disallowed under Section 14A Interest on borrowings, brokerage, commission, management fees related to exempt income
Is STT disallowed? Generally No, STT is not disallowed under Section 14A
1. If there is dividend income in the year, what expenses should the company show on investment so that exempt income is not clubbed?
Dividend income from domestic companies is exempt under Section 10(34) of the Income Tax Act.
Section 14A disallows expenses incurred to earn exempt income. So, the company must show expenses directly related to earning such exempt income.
Common examples of expenses related to investments (that generate exempt income) include:
Interest on borrowed funds used for acquiring investments.
Brokerage or commission paid for purchase or sale of shares.
Other direct expenses related to management of investments.
If these expenses are clearly identifiable and related only to taxable income, then only the expenses related to exempt income will be disallowed under Section 14A.
So to avoid disallowance, the company should maintain proper accounting to segregate expenses related to taxable income and exempt income.
2. If there is no exempt income, will Section 14A and Rule 8D still apply? Will disallowance be made?
According to CBDT circulars and judicial rulings, Section 14A and Rule 8D do apply even if no exempt income is earned in the year.
The logic is that the assessee may have incurred expenditure in relation to exempt income even if no exempt income is received in that particular year.
So, disallowance under Section 14A can still be made if the taxpayer incurs expenditure relating to exempt income, regardless of whether exempt income was earned or not.
3. What expenses need to be disallowed against exempt income? (e.g., STT, etc.)
Expenses directly or indirectly incurred to earn exempt income are subject to disallowance under Section 14A.
Typical disallowable expenses include:
Interest on borrowings used for acquiring investments yielding exempt income.
Brokerage or commission paid for purchase/sale of such investments.
Management or advisory fees related to such investments.
Repairs, maintenance, or other expenses related to investment assets.
STT (Securities Transaction Tax) is generally not disallowed under Section 14A as it is a tax on the transaction and not an expense incurred to earn exempt income.
However, expenses that are specifically related to earning exempt income will be disallowed.
Summary Table
Question Answer
Expenses to show to avoid exempt income clubbing Properly segregate expenses related to taxable income vs exempt income
Does Sec 14A & Rule 8D apply if no exempt income? Yes, disallowance can be made even if no exempt income in that year
Expenses disallowed under Section 14A Interest on borrowings, brokerage, commission, management fees related to exempt income
Is STT disallowed? Generally No, STT is not disallowed under Section 14A
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