Disallowance on Non-Deduction or Lower Deduction of TDS

The disallowance of amounts mentioned in section 40(a)(ia) will be made if the tax is not deducted at source or after deduction of tax at source has not paid the same on or before the due date specified in section 139(1).

Section 40(a)(ia) provides for disallowance of expenditure in relation to:

  • Interest
  • Commission or brokerage
  • Rent
  • Royalty
  • Fees for professional services or fees for technical services payable to resident
  • Amounts payable to a resident contractor or sub – contractor for carrying out any work including supply of labour.

Two Types of Expenses Disallowed:

(1) Section 40(a)(i):

Following expenses are not allowed:

Any payment made:

  • Outside India
  • In India to a non-resident
  • On which TDS is applicable but TDS is not deducted


  • TDS deducted but not deposited within due date of ITR (31 July/30 September)
    (Earlier due date of TDS Deposit was 30 April)
  • Examples of such expenses are interest, royalty, fees for technical services etc.
  • Payment covered here are interest, royalty, fee for technical services or any other sum chargeable to income tax.
  • Circular 3/2015 has clarified that if TDS is not deducted on payment to non-residents, only that portion will be disallowed which is chargeable to income tax and not the whole payment.

Deduction Allowed in Next Year

  1. When TDS is actually deducted and deposited in next year (after TDS Deposit date) OR
  2. When TDS is deducted in previous year but deposited in next year, then, that expense is allowed in the next year when it was actually deposited.

(2)Section 40(a)(ia)

Payments to residents on which TDS is not deducted

  • Any amount payable to residents on which TDS was deductible but TDS not deducted


  • TDS deducted but not deposited within due date of ITR (31 July/30 September)
  • In such a case, 30% of the amount will be disallowed. (Earlier whole 100% was disallowed)
  • Examples of such expenses are interest, royalty, fees for technical services, etc.

Example 1:

Mr. A paid royalty ₹10,00,000 to Mr. B (Resident) without deducting TDS on such payment. In such case how much amount disallowed in ITR?

Answer: 30% amount of ₹10,00,000 = 3,00,000 disallowed in ITR.

CBDT Circular 10/2013

Note:-  Although the section mentions that this section is applicable on “Any Amount payable”. As per CBDT Circular, it is “Any amount paid or payable”. Hence this section is applicable to those cases also when amount has been actually paid to assesse and not only those when amount is payable.

Deduction Allowed in Next Year:

  • When TDS is actually deducted and deposited in next year (after ITR due date) Or
  • When TDS deducted in previous year but deposited in next year, then, that 30% which was earlier disallowed will be allowed in the next year when it was actually deposited.

Example 2:

Mr. A paid contract fee of ₹10,00,000 to Mr. B in F.Y. 2016-17. He forgot to deduct TDS on such payment. In F.Y. 2017-18 he enters into a new contract with Mr. B of ₹15,00,000 and paid balance amount after deducting TDS on ₹15,00,000 & ₹10,00,000 both.

How much amount can be allowed or disallowed as deduction in income tax return of financial year 2016-17 & 2017-18?


In 2016-17 –

30% of amount on which TDS not deducted disallowed as deduction i.e. ₹7,00,000 is allowed as deduction in ITR of F.Y. 2016-17.

In 2017-18 –

Whole amount ₹15,00,000 & ₹3,00,000 (which was disallowed in last year due to non-deduction of TDS) is allowed as deduction in ITR of 2017-18. ₹3,00,000 is allowed as deduction in C.Y. because ₹10,00,000 on which TDS was not deducted in last year but deducted in C.Y.


Under Section 40(a)(ia) of the Act – If tax is deducted and paid in a subsequent year, the business expenditure can be reduced from total income in that year. But tax can be deducted if there is another transaction between the assesse and the same payee or some amount should remain outstanding to enable deduction. However, if there was only one transaction and the payment was made in full without deduction of tax, then TDS cannot be deducted in subsequent year and hence such sums will not be allowed in any year.

Which means that the law does not compel a person to do that what he cannot possibly perform. However, this is yet to be decided by the judiciary with respect to Section 40(a)(ia) of the Act.

Since, income tax is a charge on income and not on expenditure; therefore, expenses cannot be denied if they have been incurred for the purpose of business or profession. Disallowance under Section 40(a)(ia) converts the expenditure incurred into artificial income, therefore, this section is strictly construed.

Where tax already paid:

If the payee has already paid tax on income of which there was a short deduction or non-deduction of tax at source, recovery of tax cannot be made once again from the tax deductor.

If a person who is required to deduct TDS does not deduct it or deducted but failed to deposit may be deemed as default under section 201(1).

In other words, the person responsible for deduction of tax is considered as default only when deductee has not filed his ITR or not paid tax on such income.

If the deductee has paid tax on such income then also deductor is required to pay interest under section 201(1A) for the period from the date on which tax is deductible till the date on which the tax was actually paid.

Where to Invest under Section 80C, 80CCC, 80D*, 80CCD, 80CCG

Everyone who fits in the tax bracket has to mandatorily pay income tax. Although it’s painful; but for the nation’s economy it is very essential. Afterall the money accumulated from tax collection is used by the government for nation welfare projects such as road construction, energy, education system, and many others.

Therefore it is essential to have understanding of all the avenues that helps in tax saving and most importantly build wealth over time. Currently there are multiple investment avenues that take care of your tax liabilities and at the same time provide security to your life and health. Check out zero risk investment products.

These tax savers cover a wide ambit, from tuition fee paid for your child to the preventive health check-up you go for.

SectionWhat can be doneMaximum Investment Limit
80CInvest in EPF, PPF, NSC, NPS, ULIPs, LTA, Children's tuition fee, medical expenses, insurance premiums, 5-year tax saver FD, ELSS, senior citizen's saving scheme, Sukanya Samriddhi Yojana, Home loan principal repaymentRs. 1.5 Lakhs
80CCCClaim tax deduction on contributions to annuity plans from insurance companiesRs. 1.5 Lakhs in conjunction with section 80C
80D*Purchase medical insurance policies for self, family, and parentsSelf and family: Rs. 25,000
Senior Citizen: Rs. 30,000
Self and family + parents: Rs. 50,000
Self and family + senior citizen parents: Rs. 55,000
80CCDContribute to National Pension SystemEmployee and/or employer contribution up to 10% of basic salary and DA** is eligible up to Rs. 1.5 Lakh for tax deduction in conjunction with section 80C benfits under section 80CCC (1&2) as applicable. Additional exemption up to Rs. 50,000 in NPS is eligible for income tax deduction outside the section 80C limit and can be deducted as a deduction under section 80CCE.
80CCGRajiv Gandhi Equity Savings Scheme (RGESS)Deduction available on 50% of the sum invested or Rs. 50,000, whichever is less. Deductions can be claimed for 3 successive years, over and above the section 80C limit subject to complying with other requirements.

Most of us wait till the end of year and hastily plan our tax savers but it should rather be a year round affair.

Just like your provident fund gets deducted every month from salary, your tax planning too should move regularly. Remember, investing too is a form of saving. National Pension System (NPS), home loan, pension funds, insurance, ELSS, etc. are all investments that secure your future.

By taking up a good health and life policy, the gain is not just in terms of taxes, your dependents have it easy even when you are not around.

05 Aug 2016 – IT Return Last Date: 7 Do’s & Dont’s you should know

Last date of filing income tax return was 31st July 2016 but it has now been extended to 05th August 2016 by the government. For those who’ve already filed their returns there is no need to worry unless and until you receive notification from IT department asking for more information. Revision may be required when few details were omitted or erroneous information was submitted.

However those who are yet to file return for the assessment year 2016-2017, here are some very important do’s and don’t’s to keep in mind in order to avoid mistake of any form in the last minute.

After you file tax return online, an acknowledgement slip is generated called as ITR-V. Tax payer has to send this slip to the Income Tax Department-Central Processing Center.

  1. Only use inkjet or laser printer: Many tax payers make mistake of using dot matrix printer for printing their ITR-V form. Never do this and always use inkjet or laser printer. One more important point to note is that the ink color of the printer should be black and not of any other color.
  2. Use good quality print paper: Due to unavailability of good quality paper, printouts are taken on poor quality paper which results in too light or almost faded print which becomes unreadable to a normal eye. It should be easy for tax authority to identify the details of tax payer.
  3. Never orientate on watermarks: The only watermark allowed on the ITRV form is of Income Tax Department which is printed automatically on the tax form. No other watermark should be inserted.
  4. Always sign in original and only in blue ink: The three most common mistakes made by tax payer are – they forget to sign the form or signature is in color other than blue ink or they send photocopy of the signed ITRV form. Signature should be original. Also never sign either on barcode or the numbers below the code. It should be clearly visible to the tax authority.
  5. Use only A4 size white paper: Tax payer should only use A4 sized white colored paper. Other paper types and formats should be strictly avoided. Also make sure you do not write anything on the back of the paper and do not use stapler on the acknowledgement slip.
  6. Printing back to back: Never submit original or revised returns which are printed back to back.
  7. There is no need to submit ITV form of more than one individual in a separate envelope.

Since very limited time is left, you can opt for filing IT returns online by visiting the official website: http://incometaxindiaefiling.gov.in/eFiling/. Just register yourself on the portal and you are good to go.

Tax Saving Investments: Highest Return & Risky

Tax season for 2015-2016 has arrived and now it’s time to submit investment proof. Under section 80C of income tax act, the exemption limit is Rs. 1, 50, 000. Investing this amount every year helps in avoiding the tax payment.

And this article is for those, who haven’t yet made any investments in order to save income tax. If you delay in submitting the investment proof then be ready to get your salary slashed for the month of Jan’16, Feb’16 and Mar’16. There are various tax saving instruments either zero risk with guaranteed returns and high risk, high return.

Here are the two tax saving investment products offering high returns but are risky.

  • ELSS: Equity linked savings scheme (ELSS) also called as tax saving mutual fund. Under ELSS, the funds are invested in equities which has potential for higher returns but equities comes with risk as they are linked to various external factors such as economy, weather and many others. What sets apart ELSS from all other investment products is the lock-in period which is just 3 years. And this doen’t mean that the minimum investment required is high. It is actually just Rs. 500. Also the dividend and capital gains are exempted from tax and investment too does not carry any tax, which is very good. However in the long run investors can expect return of 14%-15%. ELSS are open ended equity mutual funds and a carefully chosen fund will grow your money and also save taxes. Investing in wrong fund will erode your returns.
  • ULIP: Unit linked insurance plans or ULIPs offers life cover in addition to returns i.e. they are insurance cum investment product. However the returns are linked to the market and calculating returns is not possible even if past performance is known. Since stock market is highly volatile in nature and amid fears of global recession in 2016, investors need to be very careful in choosing ULIPs which are offered by life insurance companies. Also the premium amount is fixed and carries a lock-in period which is minimum 5 years. However there are various charge involved such as – premium allocation, administration, switching from one fund to another, mortality cover, and surrender value and fund management. So if you compare traditional insurance cum investment life policy to ULIP then later overpowers as the returns are higher. Another advantage of ULIP is that a free look-in period of 15 days is offered during which investors can return the policy. And this does not carry any penalty.

Both ELSS and ULIPs have one thing in common and that is they are linked to the market. And equity returns is a sureshot way to beat inflation compared to zero risk tax saving investment products. And if only continued for a longer term, the returns are worth.

Mistakes In Income Tax Return Causing Rejection/Delay

Common Mistakes in Income Tax Returns

In India, financial year ends on 31st March. And every individual whose income is taxable has to file income tax return. The income tax form which has to be submitted to the income tax department contains the income earned in the previous financial year and how much tax was paid.

Currently in 2014, individuals are filing tax for the year ended 2013-2014 which is called as previous year whereas 2014-2015 would be called as assessment year. And all the income tax slabs declared in the budget of 2013 would be applicable. The exempted limit are as follows:

1) For men and women aged less than 60 years the limit is INR 2 Lacs whereas for individuals aged more than 60 years the exemption limit is INR 2.5 Lac.

2) For super senior citizen with age more than 80 years the exemption limit is INR 5 Lacs.

Rules to follow while filing income tax returns

Many people who do not have experience in filing income tax returns commit mistakes which can result in delay of processing your application in addition to frustration. So what are these common mistakes:

1) Choosing Correct Form: There are set rules for choosing the income tax form. Individuals with no prior experience in filing the form often commit mistakes in selecting the right form.Mistakes in Income Tax Return

2) Never Sign on blank form: Many people take help of agents to file their return. And since agents deal with multiple clients at a time, they first get the income tax form signed and then fill all the details on their own which can cause mistakes. So always make sure not to sign on a blank form and if you’re doing that, verify all the details once.

3) Entering incorrect numbers: Individuals should correctly enter PAN, MICR code, account number, TAN number of employer and others on the return form. Even a small mistake can result in penalty by the income tax department. Make sure you have all the documents required handy while filing the return.

4) Failure in sending acknowledgement slip: The most common mistake when e-filing your income tax return is failure/delay in sending the printed signed copy of ITR-V receipt/acknowledgement slip to CPC Bangalore. This form must be sent within 120 days after you e-file your return and as per rule, individual must send this document via Indian postal service or speed post. Never send it via courier service. If you don’t send this receipt then your return filing process is considered incomplete.

In case you are using postal service, then send it to: Income Tax Department – CPC, Post Box No – 1, Electronic City Post Office, Bangalore – 560100, Karnataka

In case of speed post send it to: Income Tax Department – CPC, Electronic City Post Office, Bangalore – 560100, Karnataka. (Notice a small difference “Post Box No – 1” is not required)

5) Not following rules when sending ITR-V: When you send ITR-V to CPC, keep following rules in mind:

  • Only A-4 size paper in white color is acceptable. Print out should be very clear and easily readable
  • Only blue ink should be used for signing the document
  • Bar code section should be left untouched
  • Printing of original or revised income tax returns should not be done back to back. ITR-V should be printed separately
  • Paper should neither be folded nor be stapled

Failure in following above mandatory rules might result in delayed processing of your application or rejection.

6) Not taking form-16: If you have changed employer during a financial year then you should take form-16 from both old and current employer. If you don’t inform your new employer about the savings made during your tenure with the previous employer then you might have to pay extra tax.

Income Tax Benefits on Insurance, Loans, Premiums, LTA

Income Tax Benefit on Life, Health Insurance and Others

Whether you are salaried individual or a businessman, when it comes to personal tax everyone gets confused. Personal taxation is such a thing whose knowledge is very difficult to understand fully. In this article I am sharing a small personal taxation guide for beginners which will help in understanding small things in very basic language. So let us discuss personal taxation step by step.

Income Tax Benefit on Life Insurance Premiums

We will start with life insurance premiums. Do you know that you, even if you are paying premiums for financially dependent parents, you cannot claim for tax deduction according to the income tax section 80 C. However, if you are paying life insurance premiums for your children, then you can take advantage of tax rebate on the premiums paid whether or not they are financially dependent on you. You can get income tax benefit for the life insurance premiums paid for married son or daughter.

Tax Benefit on Health Insurance Premiums

Under the section 80 D of the Income Tax Act, you get income tax benefit on the health insurance premiums paid for your family and parents. One interesting thing is that even though your parents are not financially dependent on you but you still claim for the benefit. Apart from these you can claim benefit for the premiums paid for financially independent husband or wife. But for claiming the benefit for your child it is required that they are financially dependent on you.

Advantages of Home Loan Deductions:

Let us discuss section 24 B which states that you can benefit from deductions on the interest paid on the home loan. And you can claim the benefit for residential or commercial property. However you should be aware of home loan rejection reasons

On the interest paid for the residential property where you are residing, you can get benefit of upto INR 1,50,000 on the home loan interest. But if you have rented that property then you can claim benefit for the amount you pay as a interest. Under the section 80 C of income tax act, you can claim the benefit only when the loan is taken from financial institutions such as banks, housing finance companies, and others.

Interest on Tuition Fees and Educational Loan:

Under the section 80C of the income tax act, you can claim benefit on the deductions done for the tuition fees of two child. But according to the section 80E, you can claim benefit on the interest paid on the educational loan taken for higher education abroad. But you can get this benefit only if the interest is paid during that particular year. Read more on planning money for abroad studies

Tax Benefits on LTA:

You can claim LTA benefits for yourself, husband, wife, parents and brother or sister. In case of husband or wife and child, benefits can be claimed only when they are not financially dependent on you whereas for claiming the benefits on parents and brother or sister they should be financially dependent on you.

Income Tax Return – Documents Required: Form 16, 12 BA, 26 AS & More

Income Tax Returns – Documents Required

Filling income tax returns (ITR) has always been a daunting task for many of us. But just having the required documents ready will make filling of your ITR form easy. Although income tax authorities don’t mandate submission of any proofs while filling the returns but when it comes to filling the details in the ITR form many details are required.

Remember, the last day to file your income tax return in India is 31st July for each assessment year.

Here’s the list of most important documents required for filling income tax return:

1) PAN Card: This is most important and everyone filling the IT return should enter it in the form.
2) Form 16: Every employer in India is required to issue Form 16 to all it’s employer. This includes nothing but the annual salary statement consisting of income earned and tax deducted in a financial year. Ideally, you should receive Form 16 before 31st May of the assessment year. If your employer fails to provide the form 16; you should send them a letter requesting the form and a copy the same to the assessing officer (Income tax authority of the related jurisdiction). There are cases, when a person changes more than 1 employer in a financial year. In such a scenario; you should get Form 16 from each of your employer.
3) Form 12BA: This is required; if taxpayers’ salary package includes perks.
4) Form 26AS: It provides details and status of the tax credit, which includes details of TDS deducted , advance tax/self assessment tax/regular assessment tax deposited by you.
5) Bank account statements: To ease the process of filling the returns; tax payer should keep summary of all bank accounts containing details of the interest earned, expenditures incurred in the year.

  • How to find interest earned in bank statement: View the “Income From Other Sources” column in your bank statement.
  • For the year 2013-2014, individual need not have to pay tax if the income is upto INR 2,00,000.

6) Medical and term insurance premium receipts.
7) Documents supporting investments in Public Provident Fund
8) Tax Saving Mutual Funds
9) Payment of principal and interest on home loan
10) Payment of interest on education loan
11) Donations to charitable trusts, tution fees and rent receipts
12) In case of property purchased in the assessment year; you would need home loan papers, property transaction (sale or purchase) the municipal tax receipts, records of payment details and receipts of stamp duty and registration fee paid, respectively.
13) Capital Gains: If you’ve made any capital gains, either short-term or long term, while transacting in capital assets such as property, gold, or equity instruments. Bills, documents and contract notes for assets sold during the year are needed as are the corresponding purchase papers.
14) Bank account number, MICR Code.

Note: Documents listed above may vary from person to person. Also read mistakes in income tax return to avoid


Get details for the form 26AS from http://www.incometaxindia.gov.in/26ASTaxCreditStatement.asp