Amount not deductible under section 40(a)

Section 40(a) of the income tax act 1962 deal with amount not deductible. notwithstanding anything to the contrary in Section 30 to Section 38, following amount or not detectable in computing the income under the head " Profit and gains under business or profession".

(A) Payment outside India or to non-residents on which TDS not made/paid on or before the due date of furnishing return of account specified under Section 139(1). However, where in respect of any sum- (i) text has been deducted in any subsequent year, (ii) or has been detected during the previous year but paid after due date specified in Section 139(1), then, such some shall be allowed as deduction in computing the income of subsequent previous year in which the TDS has been so paid.

(B) Payment in residence on which tax has not been deducted/paid 30% of some shall not be allowed as deduction. However, 30% of such sum shall be allowed as deduction in computing the income of subsequent previous year in which it has been deducted and paid 

Where the assessee fail to deduct the whole or any part of the tax on any such sum but is not deemed to be an assessee in default under the first proviso of section 201(i) ( i.e. payee has deposited self assessment tax directly), then, it shall be deemed that the assessee has detected and paid the tax on such sum on the date of furnishing of return of income by the residence payee.

(C) Payment to non residents on which equalisation levy has not been deducted, or after deduction, has been on or before the due date is specified in Section 139(1). However, in respect of any such consideration, the equalisation levy

(i) Has been deducted in any subsiquent year or

(ii) Has been deducted during the previous year but after the due date specified in Section 139(1),

such sum shall be allowed as deduction in computing the income of the previous year in which such levy has been paid.

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(D) Income Tax wealth tax. 

(E) Any amount paid by way of royalty, licence fees, services fee, privileges fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on, or which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government.

(F) Any payments chargeable under the head Salaries, if it is payable outside India or to a non resident, if tax has not been paid thereon nor deducted from. 

(G) Contribution towards Provident Fund or if no arrangement has been made for TDS from payments made from the fund which are taxable under the head salaries. 

(H) Tax on non monetary perquisites actually paid by the employer.


Disallowance of payment made to specified person relative in excess of fair market value section 40A(2) 


If assessee incur any expenditure in respect of which payment has been or it is to be made 'specified person' and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the Fair Market Value of goods, service facility for which payment is made, or the legitimate need of the business or profession of the assessee, or the benefit derived by or accruing to assessee therefrom, then, so much of the expenditure as it is so considered by Assessing Officer to be exclusive or unreadable shall not be allowed as deduction. 

Thus, amount to be disallowed = expenditure incurred - Fair Market Value of goods/service/facility/benefits etc. received by the assessee. 

However, no disallowance, on account of any expenditure being excessive or unreasonable having regard to the Fair Market Value shall be made in respect of specified domestic transaction referred to in section 92BA, if such transaction is at arm's length price of benefit of in section 92F(ii).

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Expenditure paid  in aggregate exceeding 10000 rupees in a day, otherwise than by account payee cheque or account pay bank draft or use of ECS S[ection 40A(3)] 


Any expenditure, in respect of which a payment or aggregate of payment made to a person in a single day otherwise in by account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds 10000. In case of payment made to a transport operator for plying, hiring or leasing goods carriages, and enhanced limit of 35000 shall apply. If the Payment/payments exceed the limit, the entire expenditure would be disallowed. however, disallowance would not be attacked if the cases and circumstances in which payment is made otherwise than by way of an account payee cheque or Bank draft are covered in rule 6DD.

Provision made for gratuity section 40A(7)


No detection shall be allowed in respect of any provision made by the assessee for the payment of gratuity to his employee on their requirement or on termination of their employment for any region. However, any provision made for approved gratuity fund, or for purpose of payment of any gratuity, that has become payable during the previous year, shall be allowed as deduction, subject to the provision of section 43B.

Payment made to non statutory fund section 40A(9)


No deduction shall be allowed in respect of sum paid by an employer toword setting up or formation of, or as consideration to, any fund, trust, company, association of person, body of individual, registered society, or other institution for any purpose. However, deduction allowed in case such sum is paid as per provisions under section 36(1)(iv)/(iva)/((v) or any other law for the time being in force.
Amount not deductible under section 40(a) Amount not deductible under section 40(a) Reviewed by Unknown on November 23, 2018 Rating: 5

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