Provisions Relating to Expenditure Disallowance for Non-Taxable Income: comparing Clause 14 of Income Tax Bill, 2025, with Section 14A of Income-tax Act, 1961

Clause 14 Income not forming part of total income and expenditure in relation to such income.

Income Tax Bill, 2025

1. Introduction

Both provisions deal with the disallowance of expenditure incurred in relation to income that doesn't form part of total income under respective Acts. The provisions aim to ensure that expenses related to tax-exempt income are not claimed as deductions against taxable income.

2. Structural Analysis

2.1 Basic Framework

• Both provisions contain three main subsections
• The fundamental principle remains consistent across both versions
• Language has been modernized and simplified in the 2025 Bill

3. Detailed Comparative Analysis

3.1 Sub-section (1): Basic Rule

Key Changes:

• Language Modification: The 2025 Bill uses "Irrespective of" instead of "Notwithstanding"
• Structure: More direct and concise language in the new version
• Scope: Fundamental principle remains unchanged

3.2 Sub-section (2): Assessment Officer's Powers

Notable Changes:

• Restructuring: The 2025 Bill splits the provision into two clear parts
• Clarity: More explicit mention of two scenarios:

a) Correctness of expenditure claim

b) Claim of no expenditure incurred

• Method Prescription: Both versions refer to prescribed methods, but the 2025 Bill's language is more direct

3.3 Sub-section (3): Temporal Application

Key Differences:

• The 2025 Bill incorporates the essence of the Explanation from the 1961 Act into the main provision
• Uses "tax year" instead of "previous year"
• Removes the deeming fiction present in the 1961 Act's Explanation

4. Significant Omissions in 2025 Bill

• 1. Proviso regarding reassessment powers
• 2. Specific reference to Section 147 and 154
• 3. Retrospective application clause
• 4. Explanation section

5. Practical Implications

5.1 For Taxpayers

• Clearer understanding of obligations
• More straightforward language
• Reduced scope for interpretation disputes

5.2 For Tax Authorities

• Streamlined assessment process
• Clear mandate for expenditure determination
• Simplified application of provisions

6. Conclusion

The 2025 Bill represents a modernized and streamlined version of Section 14A, maintaining its core principles while improving clarity and reducing ambiguity. The removal of certain provisions suggests a focus on prospective application and simplified administration.

 

Full Text:

Clause 14 Income not forming part of total income and expenditure in relation to such income.

 

Dated: 26-2-2025