Sub-section (1) is the disallowance: notwithstanding anything to the contrary in the Act, no deduction is allowed for expenditure incurred by the assessee in relation to income which does not form part of the total income.
Sub-section (2) supplies the machinery where the claim is disputed. Where the Assessing Officer, having regard to the accounts of the assessee, is not satisfied either with the correctness of the claim of expenditure or with a claim that no expenditure was incurred, he shall determine the amount in accordance with any method, as may be prescribed.
Sub-section (3) applies the section to expenditure incurred during a tax year in relation to such income even though that income has not accrued or arisen, and has not been received, during that year.
Why it is there
Income kept out of the total income should not also generate a deduction against taxed income. Sub-section (2) exists because the split between expenditure attributable to exempt and to taxable income is rarely written in the books, so the Act supplies a prescribed method instead. Sub-section (3) stops the rule being defeated by pointing to a year in which the exempt income happened not to arrive.
Who it applies to
Any assessee who has incurred expenditure in relation to income that does not form part of total income
An assessee who claims that no expenditure at all was incurred in relation to such income
The Assessing Officer, who must examine the accounts before invoking sub-section (2)
What this means in practice
The disallowance in sub-section (1) operates on its own; sub-section (2) is only the route to a number once the Officer records dissatisfaction on the accounts. Because the method is left to the rules, the section itself fixes no percentage and no formula — any standard rate quoted comes from the prescribed method, not from section 14. Sub-section (3) is the trap: a nil exempt receipt in the year is no defence.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A company borrows and applies part of the borrowing to investments whose income does not form part of total income, claims the whole year's interest of Rs. 1 crore, and states that no expenditure is attributable to those investments. The Assessing Officer, examining the accounts, is not satisfied with that claim and determines the attributable amount by the prescribed method under sub-section (2). That the investments paid nothing at all in the year does not help, because sub-section (3) applies the section even where the income has not accrued, arisen or been received.
Where you meet this section
You meet this section as a proposed disallowance in a scrutiny proceeding, where the Assessing Officer rejects your working and computes an amount by the prescribed method. Nothing is filed under it; it surfaces as an addition in the computation annexed to the assessment order.
The words themselves
no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income
Section 14(1), Income-tax Act, 2025.
he shall determine such amount of expenditure in accordance with any method, as may be prescribed
Section 14(2), Income-tax Act, 2025.
but such income has not accrued or arisen or has not been received during that tax year
Section 14(3), Income-tax Act, 2025.
What people get wrong
Treating the section as inapplicable in a year with no exempt income. Sub-section (3) applies it where the expenditure was incurred in relation to such income even though the income has not accrued, arisen or been received.
Quoting a fixed percentage as the section 14 disallowance. Sub-section (2) says the amount is determined "in accordance with any method, as may be prescribed".
Assuming the Officer may compute under sub-section (2) without more. He must first be not satisfied, having regard to the accounts, with the correctness of the claim or with the claim that no expenditure was incurred.
Reading a nil claim as outside the machinery. Clause (b) of sub-section (2) covers exactly that case.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
14A - Expenditure incurred in relation to income not includible in total income
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular 5/2014, dated 11-2-2014 — Section 14A of the Income-tax Act, 1961, read with rule 8d of the Income-tax Rules, 1962 - Expenditure incurred in relation to inc 2014-02-11
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 14. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
CIT v Reliance Petroproducts Pvt LtdSupreme CourtHelps taxpayertagged s.14A The officer disallowed your claim. Does a disallowance automatically bring penalty with it?
Maxopp Investment Ltd v CITSupreme CourtCuts both waystagged s.14A Shares held for control, or as stock-in-trade. Does s.14A still bite?
South Indian Bank Ltd v CITSupreme CourtHelps taxpayertagged s.14A Your own funds exceed the tax-free investments. Can interest still be disallowed proportionately?
CIT v Deepak MittalHigh CourtHelps taxpayertagged s.14A I told the Assessing Officer, even after notice, that I incurred no expenditure to earn my exempt dividend. Can he simply apply Rule 8D and disallow…
Cheminvest Ltd v CITHigh CourtHelps taxpayertagged s.14A I earned no exempt income at all this year. Can the AO still disallow under s.14A?
PCIT v Era Infrastructure (India) LtdHigh CourtHelps taxpayertagged s.14A The AO applied the 2022 Explanation to s.14A to an old year. Can he do that?
PCIT v Texport Overseas P LtdHigh CourtHelps taxpayertagged s.14A Clause (i) of s.92BA was omitted in 2017. Is the TPO adjustment for an earlier year still good?
Williamson Financial Services Ltd v CITHigh CourtHelps taxpayertagged s.14A The officer says the 2022 Explanation to s.14A is clarificatory and applies to my old years. Is there High Court authority against that?
Dish TV India Ltd v ACITITATHelps taxpayertagged s.14A Two High Courts disagree on short deduction and mine has not ruled. Which view applies to me?
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.
