Microlesson · 5-min read

Section 40(a)(i) - Disallowance for Non-Deduction/Non-Payment of TDS on Payments to NR

# Section 40(a)(i) - Payments to Non-Residents/Foreign Companies

## Trigger

Payment made to a Non-Resident or Foreign Company AND:

TDS not deducted, OR
TDS deducted but not paid to Government up to the due date of return u/s 139(1).

## Disallowance

## Subsequent Allowance

If in a later year, TDS is deducted & paid (or if already deducted, paid to Govt), the 100% disallowance is allowed as deduction in that later year.

## Important Condition

Section 40(a)(i) applies only if the sum is chargeable to tax in India in the hands of the non-resident.

## Examples of Payments Covered

Interest, royalty, fees for technical services, professional fees, etc., payable to a non-resident.

Worked example

### Example 1

Example: XYZ Ltd. pays ₹10,00,000 royalty to a foreign company in P.Y. 2025-26 without deducting TDS.

100% of ₹10,00,000 = ₹10,00,000 disallowed in P.Y. 2025-26.
If TDS is deducted and deposited in P.Y. 2026-27, → ₹10,00,000 allowed in P.Y. 2026-27.

Applying 30% disallowance (which is for resident payees) instead of 100% for NR/foreign company.
Forgetting that 40(a)(i) applies only if the sum is chargeable to tax in India.
Not claiming the deduction in the subsequent year when TDS is finally paid.

Reference: Section 40(a)(i) — Income Tax Act, 1961

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.