Disallowance of expenses relating to exempt income — Section 14A

# Section 14A — Disallowance of Expenditure Incurred to Earn Exempt Income

Section 14A prevents a deduction for expenditure that relates to income which does not form part of total income (i.e. exempt income).

## Core rule

• Expenses directly or indirectly attributable to exempt income are non-deductible while computing total income.
• The rationale: the assessee should not get a double benefit — exemption on the income AND a deduction for the cost of earning it.

## Power of the Assessing Officer

• Where the assessee does not (or incorrectly) identifies such expenditure, the Assessing Officer may estimate the disallowable expenses using the method prescribed by the CBDT (Rule 8D).