CBDT Notification Amending Rule 8D(2) Relating To Disallowance U/s 14A Of The Income-Tax Act, 1961

Rule 8D has been amended by the Income–tax (14th Amendment) Rules, 2016 notified vide Notification No 43/2016 dated 2nd June 2016. Clause (ii) of Rule 8D(2) dealing with indirect expenditure by way of interest has been omitted. It is also stated that the disallowance u/s 14A r.w Rule 8D cannot exceed the expenditure claimed by the assessee. The limit of 0.5% under clause (iii) has been increased to 1%. However, the 1% will apply to the annual average of the monthly averages of the opening and closing balances of the value of investments, income from which does not or shall not form part of total income. The question whether the disallowance can exceed the exempt income and whether the 1% is to be applied only to investments which have generated exempt income during the previous year has not been clarified and hence litigation on those points will continue.

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (ii)]

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES

NOTIFICATION

New Delhi, the 02nd June, 2016

S.O. 1949(E)- In exercise of the powers conferred by section 295 read with sub-section (2) of section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income–tax (14th Amendment) Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules 1962, in rule 8D,-

(I) for sub-rule (2), the following sub-rule shall be substituted, namely:-

“(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—

(i) the amount of expenditure directly relating to income which does not form part of total income; and

(ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income:

Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.”;

(II) sub-rule (3) shall be omitted.

[Notification No. 43/2016] [F.No. 370142/7/2016-TPL]

(Dr. T.S. Mapwal)
Under Secretary to Government of India

Note:- The principal rules were published vide Notification S.O. 969 (E), dated 26th March, 1962 and last amended by Income-tax (13th Amendment) Rules, 2016 vide Notification S.O.1923(E), dated 31.05.2016.