Section 14A r.w.r 8D

Section 14A As per Section 14A, expenditure incurred by taxpayer in relation to income which does not form part of total income at all as per the provisions of the Act should not be allowed as deduction while computing total income of taxpayer. Is there a method to determine expenditure incurred towards exempt income? Yes, Section 14A has prescribed the method for determining the expenditure incurred towards earning exempt income under Rule 8D by income tax officer. However, method prescribed under Rule 8D can be applicable only in the following scenarios: Where taxpayer claims that no expenditure has been incurred towards earning exempt income; or Where taxpayer has already disallowed amount towards expenditure incurred in relation to earning exempt income, however, assessing officer is not satisfied that the claim of taxpayer is correct considering the accounts of taxpayer.

Rule 8D – method to determine expenditure incurred towards exempt income As per the Income-tax law as it stands today (post amendment in June 2016), expenditure incurred in relation to earning exempt income is the aggregate of following: Any amount of expenditure which is directly relating to exempt income; and Amount equal to 1% of annual average of monthly average of opening and closing balances of value of investment whose income is or shall be exempt However, any disallowance computed under this Rule cannot exceed total expenditure claimed by taxpayer.