Disallowance of Expenses in Computation of Profit and Gains of Business or Profession

Transcription

1 Disallowance of Expenses in Computation of Profit and Gains of Business or Profession Part - I Section 40(a) of Income Tax Act, 1961 Purpose: Disallowance of expenses for computing income u/s 28 of Income Tax Act, Applicability: All assesses. i. Any interest, royalties, fees for technical services or other sum allowable as an expense, which is payable, outside India; or in India to a non-resident, or a foreign company, for which TDS is applicable but not deducted or after deduction, has not been paid during the previous year, or before due date u/s 200(1). If such TDS is paid after due date, the expense will be allowed as a deduction is that previous year. a. It is applicable not only to interest, royalties or technical services but also to any other payments such as rent, commission or brokerage etc. as it was mentioned other sum in the provision. b. Here, the due date for this disallowance is u/s 200(1) i.e. due date for payment of TDS, unlike for 40(ia) i.e. 139(1). c. Due date of payment of TDS is by the end of the previous year or due date u/s 200(1) 1 / 9

2 Quarter Due date Condition 1 End of previous year Due date condition (1) Due date (Later of Two) Q1 7th July Q2 7th October Q3 7th January Q4 2 / 9

3 30th April 30th April Hence, Due date in all the normal cases is 30th April of next financial year for the 4th quarter and for other quarters. a. The expenses for which TDS is paid after due date can be claimed as an expense in the previous year in which it is paid. b. There is no provision talking about short deduction, but taking the intention of law into consideration, we can allow the proportion of amount on which TDS is paid. (ia) Any payment other than salary, for which TDS is applicable but not deducted or after deduction, has not been paid during the previous year, or before due date u/s 139(1). w.e.f. AY 13-14, The assessee failed to deduct tax at source, but the receiver of such payment, i. has furnished his return of income under section 139; ii. has taken into account such sum for computing income in such return of income iii. has paid the tax due on the income declared by him in such return of income, and iv. the receiver furnishes a certificate to this effect from an accountant in such form as may be prescribed 3 / 9

4 If such TDS is paid after due date, the expense will be allowed as a deduction is that previous year. a. Here, the due date for this disallowance is u/s 139(1) i.e. due date for filing of return, unlike for 40(i) i.e. 200(1). b. Due date of payment of TDS is by the end of the previous year or due date u/s 139(1) Quarter Due date Condition 1 End of previous year Due date condition (1) Due date (Later of Two) Q1 Q2 4 / 9

5 Q3 Q4 Hence, due date is 31st July for normal assesses and 30th September for assesses required Tax Audit. a. From this assessment year, even if TDS is not deducted and paid, assessee can claim the expense provided the receiver of payment filed his return along with the payment of tax. However, this provision is not applicable for 40(a) i.e. Payment to non-residents. b. Disallowance of expense on non-payment of TDS is not applicable to salary paid to a resident employee. (ib) Any sum paid on account of fringe benefit tax. It will be no longer applicable unless the liability of previous years is paid in the relevant previous year. 5 / 9

6 (ii) Any tax on the profits or gains of any business, As this taxes paid were already allowed as deductions u/s 90,90A and 91, The act is disallowing them here. (iia) Any sum paid on account of wealth-tax. For this sub-clause, any tax paid on wealth, capital employed in a business inside or outside India, except assets in the business or profession. Any tax paid on assets in the business or profession can be claimed as expense. (iii) Any payment which is chargeable under the head "Salaries", if it is payable outside India; or to a non-resident, if TDS is neither deducted nor paid. a. As the due date is not mentioned, for this section, it can be taken as 139(1).i.e. due date of filing the return. b. Salary paid to non-resident will be allowed as a deduction only if TDS is either deducted or paid. c. If it is neither deducted nor paid before due date, it is permanently disallowed as there was no provision for allowing later in the year which it is deducted and paid. Amount paid TDS deducted 6 / 9

7 TDS paid by due date Allowance 7 / 9

8 Permanent Disallowance (iv) Any payment to a provident or other fund established for the benefit of employees without effective arrangement for payment of TDS out of sums paid under head salaries. The Act said nothing about what constitutes effective arrangement. So it can be taken that the intimation of management to trust maintaining statutory payments to make effective arrangements can be considered as sufficient. (v) Any tax actually paid by an employer on behalf of employee. This will be in case of perquisite tax paid by employer on behalf of employee. It will be disallowed in the hands of employer and added as perquisite to employee. 8 / 9

9 This can be reasoned as ones tax should be paid by oneself. 9 / 9