Section 40A(2)(b)

This query is : Resolved 

29 May 2008

Can anyone provide me chart of parties covered u/s 40A(2)(b) of IT Act

CA Hemant T Dewani (Expert)
29 May 2008

Amounts not deductible in respect of payment to Relatives [Sec. 40A(2)]

As per the provisions of this section any payment made by an assessee to any of his ‘Relatives’ in respect of any expenditure is disallowable to the extent it is considered excessive, or unreasonable, having regard to the market value of Goods or Services or Facilities etc.

Here the following definitions need to be considered for better understanding:

‘Relative’ is defined to include Husband, Wife, Brother, Sister or any other Lineal Ascendant or Descendant; and

‘Substantial Interest’ is defined as a situation wherein a person is the beneficial owner of at least 20% or more Equity Voting Power (in case of Company) or is entitled to 20% or more of the profits. (in any other case).

The extent of disallowablity is to be decided by the assessee himself and proportionate expenditure be disallowed at the time of filing of his Self Assessment Tax u/s 139 of the Income Tax Act.

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