# Section 40(a)(iii) - TDS on Salary Paid Outside India / to Non-Resident

## Trigger

Salary is payable:

AND

TDS not deducted, OR
TDS deducted but not deposited to Government A/c by the TDS payment due date (7th of the next month).

## Disallowance

## Special Rule - No Subsequent Allowance

Unlike Sec 40(a)(i) and 40(a)(ia), under 40(a)(iii) the salary is NEVER allowed again even if TDS is subsequently paid.
The disallowance is permanent.

## Comparison with Other 40(a) Provisions

Section	Applies to	Disallowance	Subsequent Allowance
40(a)(i)	Payment to NR/Foreign Co.	100%	Yes - on subsequent TDS payment
40(a)(ia)	Payment to Resident	30%	Yes - on subsequent TDS payment
40(a)(iii)	Salary outside India / to NR	100%	NO - permanent disallowance

Worked example

### Example 1

Example: A company pays ₹12,00,000 salary to Mr. X, a Non-Resident, for services rendered. No TDS is deducted.

₹12,00,000 is disallowed in current year u/s 40(a)(iii)
Even if TDS is deducted & paid in next year, the disallowance is never reversed — salary remains permanently disallowed.

⚠️ Common exam mistakes

Treating Sec 40(a)(iii) like Sec 40(a)(i) — assuming subsequent payment of TDS will allow the deduction. It will NOT.
Confusing the TDS payment due date — for Sec 40(a)(iii), it is 7th of next month (TDS payment due date), not the ITR filing due date.
Not applying the section when salary is paid TO a NR in India (it applies in this case too).

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

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Section 40(a)(iii) - TDS on Salary Paid Outside India or to NR

Worked example