Expenses not deductible under section 40
1.Section 40(a)(i): Non-Compliance of provision of TDS where payment is made to Non-Resident Disallowance u/s 40(a)(i) shall be attracted if:
- -Outside India to a non-resident or a foreign company
- -In India to a non-resident or a foreign company
- -Tax at source has not been deducted, or
- -Tax at source has been deducted but has not been paid on or before the due date specified in section 139(1).
2.Section 40(a)(ia): Non-Compliance of provisions of TDS where payment is made to a Resident. Disallowance u/s 40(a)(ia) shall be attracted if an assessee:
- -Penalty under section 221 which can be up to the amount of TDS not deducted/not paid.
- -Interest u/s 220 @ 1% p.m. from the date the tax was deductible/payable till the date of passing of an order u/s 201.
3. Section 40(a)(ii): Income Tax
- A. Income Tax paid under the India Income tax Act, 1961 is not allowed as deduction.
- B. Tax paid in foreign country for which relief or credit is available under Double Taxation Avoidance Agreements (DTAAs) u/s 90.
- C. Tax paid in foreign country with which India does not have a DTAA but which is allowed as deduction from Indian Income Tax payable u/s 91.
- D. service tax is allowable as deduction u/s 37(1), Subject to section 43B.
4. Section 40(a)(iib): Fee or charges paid by State Government Undertaking
- A. Any amount paid by way of royalty, license fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or
- B. which is appropriated, directly or indirectly from, a state government undertaking by the State Government.
5. Section 40(a)(iii): TDS on salary payable outside India or to a Non-Resident
- A. salaries payable outside India or to a Non-Resident in India are allowed as deduction only if:
- - TDS has been deducted, and
- - TDS has been paid, within time prescribed under Income Tax act.
- B. If TDS is deposited late even by one day, the salary paid outside India or to a Non-Resident in India shall not be allowed as deduction.
- C. If TDS is not deducted but paid by the assessee from his own pocket, then also salary payable outside India or to a Non-Resident in India shall not be allowed as deduction.