Section 14a disallowance

expenses which can be directly related to such incomes will only ne disallowed. indirect expenses will not be disallowed.

Originally posted by : Tribhuvan Aditya Singh
	expenses which can be directly related to such incomes will only ne disallowed. indirect expenses will not be disallowed.

The natrure of expenses is such that it cannot be concluded that the expenses are directly related. There is a rule related to section 14A of the act (Rule 8D) stating the method of determining the amount of disallowance i.e. 0.5% of average of the investment from which such exempt income is generated.

But is the contention of disallowing 91% of the total expenses justified??

91% of expenses will never be allowed of AO comes to know about it. i havent read rule 8D, but if you are saying that 0.5% of avg inv. is allowed as deduction then you can deduct such amount.

Rule 8D prescribes a formula to determine the amount of disallowance as being aggregate of: 1. Amount of expenditure directly relating to income which does not form part of total income; 2. Proportionate interest expenditure on borrowed funds with reference to investments and total assets of the taxpayer; 3. Amount equal to one half percent of the average investments, which does not or shall not form part of total income.