Section 14A of the Income Tax Act read with Rule 8D

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..... Section 14A of the Income Tax Act read with Rule 8D
Query (Issue) Started By: - Amit Sharma Dated:- 1-12-2011 Last Reply Date:- 21-6-2012 Income Tax
Got 2 Replies
Income Tax
If interest has been paid on loan taken which was invested in shares and dividend income were earned on such investment. Then as per section 14A the interest amount shall be disallowed. As per rule 8D calculation .....

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..... is make by using following formula if interest not directly related to exempted income. Interest paid X average investment / average total assets The average figures shall be taken as average of opening balance of total assets and investment and closing balance of total asset and investment. My query is that if there is no opening balance of investment i.e. if investment made in current year s .....

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..... ay in the month of july then how we calculate average amount of investment for the purpose of above formula however investment have closing value. Example : Investment made in shares Rs. 60 lakhs. (18-07-2009) Interest Rs. 8 Lakhs Average Total Assets Rs. 1 Crore. Closing balance of Investment of Rs. 500000 Reply By Deepak Nagori: The Reply: Dear Amit, Rule 8D is very clear in giving the formu .....

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..... la for disallowance. Accordingly, if there is no opening balance of investment, it shall be taken as NIL. So in the example you have given, the amount of interest to be disallowed u/s 14A shall be total of the following: a) 800000 x [(0+500000) / 2] / [10000000] = 20,000 b) 1/2% of [(0+500000) / 2] = 1250 So total disallowance shall be Rs. 21,250 Hope this clarifies Regards CA Deepak Nagori .....

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..... Reply By Anshuman Mishra: The Reply: Dear Amit, Rule 8D is very clear in giving the formula for disallowance. Accordingly, if there is no opening balance of investment, it shall be taken as NIL. So in the example you have given, the amount of interest to be disallowed u/s 14A shall be total of the following: a) 800000 x [(0+500000) / 2] / [10000000] = 20,000 b) 1/2% of [(0+500000) / 2] = 1250 .....

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..... So total disallowance shall be Rs. 21,250 Hope this clarifies Regards CA Anshuman Mishra
Discussion Forum - Knowledge Sharing .....

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