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Section 40

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Krishna (Querist)
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09 October 2014 if loan is repaid in cash to finance company then only interest is disallowed u/s 40A or both interest and principal repayment also disallowed .... please help

CA ROHIT JAIN

CA ROHIT JAIN (Expert)
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10 October 2014 Principal repayment is not debited to profit & loss but is debited to loan account. Hence, There is no question of disallowing principal repayment as it was never claimed as expense. A payment which was not allowed to be claimed as expense can never be disallowed. So far as the payment of interest is concerned first take out the amount of interest component from the total paymeny made in a single day ( sum paid minus principal component). If it exceeds rs. 20000, then only it will be disallowed folloing the literal interpretation of sec 40A(3) assuming the receipient is not a bank. However you can still fight for its allowance on the ground of genuiness of payment and business expidiency. In case the payment is made to any type of bank specified in clause (a) of rule 6DD then the the interest payment is also allowed.

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