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income tax

kapil abhishek (student) (293 Points)

21 May 2010

can you please explain this properly?

method of allocating expenditure in relation to exempt income?????????????

where assessing officer is not satisfied with the correctness of claim?

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Anuraag Sharma (Sr Executive Finance) (845 Points)
Replied 21 May 2010

ur question seems to be somewhat ambiguous

though the following may be suitable:

in case of exempted incomes ...the exemption is granted as per the provisions or rules mentioned in the Income tax act.....

there is no case of deducting expenditures from exempted incomes on any basis other than those mentioned in the Act or the rules framed.....BUT these should be refered as EXEMPTIONS not a deduction in respect of any expenditure untill and unless specified in the Act....

however, in case of DEDUCTIONS & PERQUISITES there are some cases where "EXPENDITURES" are allocated but the case varies acc. to which Deduction assessee is claiing or what kind of perquisite has been received by the assessee....

plz mention the specific deduction or perquisite or exemption to know more clearly......

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Kalpesh (CA) (82 Points)
Replied 21 May 2010

pls refers section 14A rw Rule 8D.

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Shudhanshu Agrawal (Business) (2570 Points)
Replied 21 May 2010

If any income is not considered in the calculation of Gross Total Income (i.e. exempted income) then expenses related to that income is not considered.

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Ashish M (Chartered Accountant) (2731 Points)
Replied 21 May 2010

Its not that difficult, try understanding this simple way....

Sec.14A (in this regard), says that for calculating expenditure relating to exempt income,

(a) First take those expenditures which r directly related to the exempted income;

(b) then, those interest expenses which r not specifically used for exempted income and instead used for both exempted and taxable income, (like interest paid on general loans taken), multiply the interest of this loan from the proportion of Average tax free investments and total assets.i.e. Avg. of tax free investments / avg to total assets. this avg. will be calculated on first and last day of previous yr.....!!!!

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CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 21 May 2010

Originally posted by : Ashish M
	Its not that difficult, try understanding this simple way.... Sec.14A (in this regard), says that for calculating expenditure relating to exempt income, (a) First take those expenditures which r directly related to the exempted income; (b) then, those interest expenses which r not specifically used for exempted income and instead used for both exempted and taxable income, (like interest paid on general loans taken), multiply the interest of this loan from the proportion of Average tax free investments and total assets.i.e. Avg. of tax free investments / avg to total assets. this avg. will be calculated on first and last day of previous yr.....!!!! (c) add to (a) and (b), (.5%) of avg tax free investments......!!!! period.

Can you please explain with an example?

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kapil abhishek (student) (293 Points)
Replied 21 May 2010

dear ashish i think you solve my problem

i have to read it again......

thanx friends,,,,,,,,,,

Ashish M (Chartered Accountant) (2731 Points)
Replied 22 May 2010

Originally posted by : Abhishek K. Pandey
	Can you please explain with an example?

Refer the balance sheet below: (Rs., lacs)

Liabilities	2009	2010	Assets	2009	2010
Share capital	500	300	Building	400	200
Loan for shares	200	200	Shares	200	200
General loan	300	300	Bonds (taxable=tax free= 200)	400	400
	1000	800		1000	800

For yr. 2010 Given: (a)Dividend income 20 lacs.(b)interest paid on general loan 30 lacs and for shares Rs.20 lacs. Now applying sec.14A. the disallowed int. will be .:

(1) Interest directly relatable to tax free investments. = 20 lacs.

(2) apply Formula; [30 x (400+400/2)/(1000+800)/2] = 13.33 lacs

(3) (.5%) of tax free investments = 400 * .5%= 2 lacs

TOTAL DISALLOWED INTEREST = 35.33 LACS

[Here, tax free investments are shares and tax free bonds = 200+200 = 400 lacs]

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