Section 14

Section 14: income not forming part of total income and expenditure in relation to such income

Section 14 stops taxpayers from claiming a double benefit - getting an income item exempted from tax under Section 11 (or elsewhere) while also deducting the expenses incurred to earn that exempt income against their taxable income. It also gives the Assessing Officer a mechanism to work out the disallowable expenditure where the taxpayer's own figures aren't convincing.

This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.

The core disallowance

Irrespective of any other provision of the Act, no deduction is allowed, in computing total income, for expenditure incurred by the assessee in relation to income which does not form part of total income (section 14(1)).

When the Assessing Officer can step in

If the Assessing Officer, having regard to the assessee's accounts, is not satisfied with the correctness of the assessee's claimed expenditure relating to exempt income, or with the assessee's claim that no such expenditure was incurred at all, the Assessing Officer determines the amount of such expenditure using a prescribed method (section 14(2)).

Applies even if the exempt income hasn't yet been received

Section 14(3) clarifies that this section applies even where expenditure was incurred in a tax year in relation to income that does not form part of total income, but that income has not actually accrued, arisen or been received in that tax year.

Frequently asked questions

Can I deduct expenses incurred to earn tax-exempt income?

No - Section 14(1) specifically disallows any deduction for expenditure incurred in relation to income that does not form part of total income.

What if I claim I incurred no expenditure on exempt income at all?

If the Assessing Officer, based on your accounts, isn't satisfied with that claim (or with the amount you've claimed), the Assessing Officer can independently determine the disallowable expenditure using a method to be prescribed under the rules.