The Assessing Officer has computed a s.14A disallowance under Rule 8D. Which version of Rule 8D applies to my year, and is the disallowance capped?
That depends entirely on the previous year, because Rule 8D was substituted. THE DATE IS THE FIRST QUESTION: the departmental page for Rule 8D carries footnote 78, "Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016", and footnote 79, "Omitted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016". As substituted, sub-rule (1) provides that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee, or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with sub-rule (2). Sub-rule (2) as substituted has TWO limbs and a cap: the expenditure is the aggregate of (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, with a proviso that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee. The three-limb formula that preceded it, including the interest-apportionment limb and the percentage-of-average-investments limb, is STILL the applicable law for earlier previous years, and is still being applied in appeals for them. The pre-substitution text is now sourced, from the departmental page for the notification that inserted the rule: under the original rule 8D(2) the disallowance was the aggregate of (i) expenditure directly relating to exempt income, (ii) where interest expenditure was not directly attributable to any particular income or receipt, an amount computed as A x B / C, where A was that interest, B the average value of investments yielding exempt income on the first and last day of the previous year and C the average of total assets on the same two days, and (iii) "an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year". Sub-rule (3) defined "total assets" as total assets in the balance sheet excluding an increase on revaluation but including a decrease.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2016-06-02, reported as Rule 8D of the Income-tax Rules, 1962, heading "Method for determining amount of expenditure in relation to income not includible in total income", transcribed from incometaxindia.gov.in/w/rule-8d-1, a page that prints NO "Year:" stamp, with footnotes 78 and 79 on that page recording the substitution and an omission by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016; the enabling provision s.14A(2) and (3) read on incometaxindia.gov.in/w/section-14a-23 (Year: 2024 (No. 1)), whose footnote 78 reads "See rule 8D"; incometaxindia.gov.in/w/rule-8d read and found to be a DIFFERENT rule 8D, "Form of report of valuation by registered valuer". It bears on section Rule 8D, section 14A, section 14A(1), section 14A(2), section 14A(3), section 10(34), section 10(38), section 36(1)(iii) of the Income Tax Act 1961, in Deductions & Disallowances, Assessment & Scrutiny and How Tax Law Is Read matters.
Every s.14A dispute now turns first on a date that is not in the middle of a financial year boundary: 2 June 2016. A practitioner who quotes the two-limb rule in an appeal for an earlier previous year is quoting a rule that did not exist for that year, and one who quotes the three-limb rule for a later year is doing the same in reverse. Two features of the substituted rule change outcomes and are frequently missed. First, the cap: the proviso limits the aggregate of clause (i) and clause (ii) to the total expenditure claimed by the assessee, so a disallowance exceeding total claimed expenditure is bad on the face of the rule, whatever the investment base. Second, the clause (ii) base is not a simple opening-and-closing average — it is the annual average of the MONTHLY averages of the opening and closing balances of the value of investment, which requires twelve monthly computations, and a computation built on two balance-sheet figures does not answer the rule. The threshold question remains s.14A(2) and (3): the officer reaches Rule 8D at all only on the satisfaction the sub-rule (1) requires, recorded having regard to the accounts. THE LIBRARY ALREADY HOLDS THE DECISIONS on that threshold and on which years Rule 8D reaches, and the reader should be sent to them rather than to this entry — CIT v Essar Teleholdings (slug cit-v-essar-teleholdings-rule-8d-prospective-ay-2008-09), CIT v Taikisha Engineering (slug cit-v-taikisha-engineering-satisfaction-mandatory-before-rule-8d) and CIT v Deepak Mittal (slug cit-v-deepak-mittal-14a-2-enquiry-before-rule-8d) — and to the library's own entry on s.14A and Rule 8D after the 2022 amendment (slug section-14a-and-rule-8d-after-the-2022-amendment). This entry states the rule and its substitution date; it makes no statement about what any of those decisions holds.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
Rule 8D, as substituted and as printed on the departmental page at /w/rule-8d-1, reads: "(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with— (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (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." The page carries two footnotes, transcribed verbatim: "78. Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016." and "79. Omitted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016." The page carries no "Year:" stamp. The text of the rule as it stood before that substitution is printed on the departmental page for Notification No. 45/2008, dated 24 March 2008, the Income-tax (Fifth Amendment) Rules, 2008, which inserted rule 8D after rule 8C. As printed there, rule 8D as originally inserted read: "Method for determining amount of expenditure in relation to income not includible in total income. 8D (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with – (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (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; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :— A X B / C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." That is the three-limb formula: the directly-relatable limb, the interest-apportionment limb computed as A x B / C, and the one-half per cent of average investments limb. The enabling words of the 2008 notification are printed on that page as "In exercise of the powers conferred by section 295 of the Income-tax read with sub-section (2) of section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962" — the words "of the Income-tax read with" are reproduced as the page prints them. The notification that made the 2016 substitution is Notification No. 43/2016, F. No. 370142/7/2016-TPL, S.O. 1949(E), dated 2 June 2016, the Income-tax (14th Amendment) Rules, 2016, whose operative clause reads: "In the Income-tax Rules 1962, in rule 8D,- (I) for sub-rule (2), the following sub-rule shall be substituted, namely:- ... ; (II) sub-rule (3) shall be omitted." That is the instrument behind footnotes 78 and 79 on the rule page, and it is what establishes that the paragraph numbered "3." on the 2008 notification page is sub-rule (3) of rule 8D. The enabling provision, s.14A(2), as printed on the departmental page stamped Year 2024 (No. 1), reads: "The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act", with footnote 78 on that page reading "See rule 8D".
Not a judgment. The statutory position is that Rule 8D of the Income-tax Rules, 1962 was substituted by the IT (Fourteenth Amendment) Rules, 2016 with effect from 2 June 2016, so that the formula applicable to a given disallowance depends on the previous year; that as substituted, sub-rule (1) permits the Assessing Officer to determine the expenditure under sub-rule (2) only where, having regard to the accounts of the assessee of that previous year, he is not satisfied with the correctness of the claim of expenditure or with a claim that no expenditure has been incurred in relation to exempt income; that sub-rule (2) as substituted has two limbs, being the expenditure directly relating to income not forming part of total income, plus 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; and that the proviso caps the aggregate of those two limbs at the total expenditure claimed by the assessee. The pre-substitution text, which continues to govern earlier previous years, was not reachable on any departmental page and is not stated here; nor is the notification number or gazette date of the amending rules.
Not a judgment; no judicial reasoning is stated for the section.
78. Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016.
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Handle my notice → Ask a CA on WhatsAppThat depends entirely on the previous year, because Rule 8D was substituted. THE DATE IS THE FIRST QUESTION: the departmental page for Rule 8D carries footnote 78, "Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016", and footnote 79, "Omitted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016". As substituted, sub-rule (1) provides that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee, or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with sub-rule (2). Sub-rule (2) as substituted has TWO limbs and a cap: the expenditure is the aggregate of (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, with a proviso that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee. The three-limb formula that preceded it, including the interest-apportionment limb and the percentage-of-average-investments limb, is STILL the applicable law for earlier previous years, and is still being applied in appeals for them. The pre-substitution text is now sourced, from the departmental page for the notification that inserted the rule: under the original rule 8D(2) the disallowance was the aggregate of (i) expenditure directly relating to exempt income, (ii) where interest expenditure was not directly attributable to any particular income or receipt, an amount computed as A x B / C, where A was that interest, B the average value of investments yielding exempt income on the first and last day of the previous year and C the average of total assets on the same two days, and (iii) "an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year". Sub-rule (3) defined "total assets" as total assets in the balance sheet excluding an increase on revaluation but including a decrease. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section Rule 8D, section 14A, section 14A(1), section 14A(2), section 14A(3), section 10(34), section 10(38), section 36(1)(iii) of the Income Tax Act 1961. It is reported as Rule 8D of the Income-tax Rules, 1962, heading "Method for determining amount of expenditure in relation to income not includible in total income", transcribed from incometaxindia.gov.in/w/rule-8d-1, a page that prints NO "Year:" stamp, with footnotes 78 and 79 on that page recording the substitution and an omission by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016; the enabling provision s.14A(2) and (3) read on incometaxindia.gov.in/w/section-14a-23 (Year: 2024 (No. 1)), whose footnote 78 reads "See rule 8D"; incometaxindia.gov.in/w/rule-8d read and found to be a DIFFERENT rule 8D, "Form of report of valuation by registered valuer". Every s.14A dispute now turns first on a date that is not in the middle of a financial year boundary: 2 June 2016. A practitioner who quotes the two-limb rule in an appeal for an earlier previous year is quoting a rule that did not exist for that year, and one who quotes the three-limb rule for a later year is doing the same in reverse. Two features of the substituted rule change outcomes and are frequently missed. First, the cap: the proviso limits the aggregate of clause (i) and clause (ii) to the total expenditure claimed by the assessee, so a disallowance exceeding total claimed expenditure is bad on the face of the rule, whatever the investment base. Second, the clause (ii) base is not a simple opening-and-closing average — it is the annual average of the MONTHLY averages of the opening and closing balances of the value of investment, which requires twelve monthly computations, and a computation built on two balance-sheet figures does not answer the rule. The threshold question remains s.14A(2) and (3): the officer reaches Rule 8D at all only on the satisfaction the sub-rule (1) requires, recorded having regard to the accounts. THE LIBRARY ALREADY HOLDS THE DECISIONS on that threshold and on which years Rule 8D reaches, and the reader should be sent to them rather than to this entry — CIT v Essar Teleholdings (slug cit-v-essar-teleholdings-rule-8d-prospective-ay-2008-09), CIT v Taikisha Engineering (slug cit-v-taikisha-engineering-satisfaction-mandatory-before-rule-8d) and CIT v Deepak Mittal (slug cit-v-deepak-mittal-14a-2-enquiry-before-rule-8d) — and to the library's own entry on s.14A and Rule 8D after the 2022 amendment (slug section-14a-and-rule-8d-after-the-2022-amendment). This entry states the rule and its substitution date; it makes no statement about what any of those decisions holds. If it applies to you, the first step is this: Fix the previous year first, then pick the formula. The substitution took effect on 2 June 2016 per footnote 78 on the departmental page; do not carry the two-limb formula back or the three-limb formula forward without deciding which previous years each governs.
Rule 8D, as substituted and as printed on the departmental page at /w/rule-8d-1, reads: "(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with— (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (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." The page carries two footnotes, transcribed verbatim: "78. Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016." and "79. Omitted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016." The page carries no "Year:" stamp. The text of the rule as it stood before that substitution is printed on the departmental page for Notification No. 45/2008, dated 24 March 2008, the Income-tax (Fifth Amendment) Rules, 2008, which inserted rule 8D after rule 8C. As printed there, rule 8D as originally inserted read: "Method for determining amount of expenditure in relation to income not includible in total income. 8D (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with – (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (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; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :— A X B / C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." That is the three-limb formula: the directly-relatable limb, the interest-apportionment limb computed as A x B / C, and the one-half per cent of average investments limb. The enabling words of the 2008 notification are printed on that page as "In exercise of the powers conferred by section 295 of the Income-tax read with sub-section (2) of section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962" — the words "of the Income-tax read with" are reproduced as the page prints them. The notification that made the 2016 substitution is Notification No. 43/2016, F. No. 370142/7/2016-TPL, S.O. 1949(E), dated 2 June 2016, the Income-tax (14th Amendment) Rules, 2016, whose operative clause reads: "In the Income-tax Rules 1962, in rule 8D,- (I) for sub-rule (2), the following sub-rule shall be substituted, namely:- ... ; (II) sub-rule (3) shall be omitted." That is the instrument behind footnotes 78 and 79 on the rule page, and it is what establishes that the paragraph numbered "3." on the 2008 notification page is sub-rule (3) of rule 8D. The enabling provision, s.14A(2), as printed on the departmental page stamped Year 2024 (No. 1), reads: "The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act", with footnote 78 on that page reading "See rule 8D". The matter was decided on 2016-06-02 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that Rule 8D of the Income-tax Rules, 1962 was substituted by the IT (Fourteenth Amendment) Rules, 2016 with effect from 2 June 2016, so that the formula applicable to a given disallowance depends on the previous year; that as substituted, sub-rule (1) permits the Assessing Officer to determine the expenditure under sub-rule (2) only where, having regard to the accounts of the assessee of that previous year, he is not satisfied with the correctness of the claim of expenditure or with a claim that no expenditure has been incurred in relation to exempt income; that sub-rule (2) as substituted has two limbs, being the expenditure directly relating to income not forming part of total income, plus 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; and that the proviso caps the aggregate of those two limbs at the total expenditure claimed by the assessee. The pre-substitution text, which continues to govern earlier previous years, was not reachable on any departmental page and is not stated here; nor is the notification number or gazette date of the amending rules.
Not a judgment; no judicial reasoning is stated for the section. In the words reproduced by the source cited on this page: "78. Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016."
It was decided by the CBDT Circulars & Instructions on 2016-06-02 and is reported as Rule 8D of the Income-tax Rules, 1962, heading "Method for determining amount of expenditure in relation to income not includible in total income", transcribed from incometaxindia.gov.in/w/rule-8d-1, a page that prints NO "Year:" stamp, with footnotes 78 and 79 on that page recording the substitution and an omission by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016; the enabling provision s.14A(2) and (3) read on incometaxindia.gov.in/w/section-14a-23 (Year: 2024 (No. 1)), whose footnote 78 reads "See rule 8D"; incometaxindia.gov.in/w/rule-8d read and found to be a DIFFERENT rule 8D, "Form of report of valuation by registered valuer". Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section Rule 8D, section 14A, section 14A(1), section 14A(2), section 14A(3), section 10(34), section 10(38), section 36(1)(iii), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that Rule 8D of the Income-tax Rules, 1962 was substituted by the IT (Fourteenth Amendment) Rules, 2016 with effect from 2 June 2016, so that the formula applicable to a given disallowance depends on the previous year; that as substituted, sub-rule (1) permits the Assessing Officer to determine the expenditure under sub-rule (2) only where, having regard to the accounts of the assessee of that previous year, he is not satisfied with the correctness of the claim of expenditure or with a claim that no expenditure has been incurred in relation to exempt income; that sub-rule (2) as substituted has two limbs, being the expenditure directly relating to income not forming part of total income, plus 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; and that the proviso caps the aggregate of those two limbs at the total expenditure claimed by the assessee. The pre-substitution text, which continues to govern earlier previous years, was not reachable on any departmental page and is not stated here; nor is the notification number or gazette date of the amending rules. It arises in Deductions & Disallowances, Assessment & Scrutiny and How Tax Law Is Read matters, on section Rule 8D, section 14A, section 14A(1), section 14A(2), section 14A(3), section 10(34), section 10(38), section 36(1)(iii) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Apply the proviso as a hard ceiling: the aggregate of clause (i) and clause (ii) cannot exceed the total expenditure claimed by the assessee. Compute total claimed expenditure and put it on the record before arguing about the investment base. Attack the clause (ii) base where it is computed from two balance-sheet figures. The rule requires 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. Take the sub-rule (1) satisfaction point before the arithmetic. Rule 8D is reached only where the officer, having regard to the accounts of the assessee of that previous year, is not satisfied with the correctness of the claim of expenditure or with a claim that no expenditure was incurred; the library holds the authority on that in cit-v-taikisha-engineering-satisfaction-mandatory-before-rule-8d and cit-v-deepak-mittal-14a-2-enquiry-before-rule-8d. For any pre-substitution year, read the three-limb rule as it stood from a source you can date, because it is NOT reproduced in this entry — the departmental editions printing it were not reachable on this pass and no figure from it is stated here.
Still good law. The two-limb text as stated is the current text of Rule 8D so far as I could establish, but the establishing is thinner than for a section and the reader should know how thin. The page it is taken from, /w/rule-8d-1, prints NO "Year:" stamp, so it cannot be dated from its own face; what dates it is footnote 78, recording the substitution by the IT (Fourteenth Amdt.) Rules, 2016 w.e.f. 2-6-2016. No second departmental edition of the rule page itself was reachable — /w/rule-8d-2 and /w/rule-8d-3 are 404s and the rules indexes yield no rule-level links. The pre-substitution three-limb text is nevertheless established, from a different kind of departmental page: the notification that inserted rule 8D, Notification No. 45/2008 (Income-tax (Fifth Amendment) Rules, 2008), at https://www.incometaxindia.gov.in/w/45-notification-45-date-of-issue-24/03/2008, sourced on 18 September 2026. THAT PAGE CARRIES NO "Year:" STAMP and prints "Upload Date: 24/03/2008"; it prints no S.O. number, so the gazette number of the 2008 notification remains unestablished. The notification number and gazette date of the substituting rules ARE now established: Notification No. 43/2016, S.O. 1949(E), dated 2 June 2016, read at https://www.incometaxindia.gov.in/documents/d/guest/notification432016-pdf. Because the pre-substitution text is taken from the inserting notification rather than from a dated edition of the rule as it stood in, say, 2015, any amendment to rule 8D between 24 March 2008 and 2 June 2016 would not be visible to me, and I make no statement that none occurred. I make no statement about any amendment to Rule 8D after 2 June 2016; on the evidence of footnotes 78 and 79 alone, a later amendment cannot be excluded. No judicial treatment was examined on this pass. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THE RULE PAGE IS A TRAP OF ITS OWN, and the reader needs the trap named. https://www.incometaxindia.gov.in/w/rule-8d is NOT this rule: it returns rule 8D of a different set of rules, headed "Form of report of valuation by registered valuer", with a table of Forms O-1 to O-10 for immovable property, jewellery, life interests and the like. Rule 8D of the Income-tax Rules, 1962 is served at https://www.incometaxindia.gov.in/w/rule-8d-1, and a reader who takes the bare /w/rule-8d address will read the wrong rule from top to bottom without anything on the page telling him so. THE PAGE CARRIES NO "Year:" STAMP. Unlike the section pages, https://www.incometaxindia.gov.in/w/rule-8d-1 prints no Year value and no "as amended by" line — I asked for it twice and it is not there — so this rule text CANNOT BE DATED from its own page. What dates it is its two footnotes, transcribed verbatim: "78. Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016." and "79. Omitted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016." Footnote 79 records an omission but does NOT print the omitted words; footnote 78 records a substitution but does NOT print the pre-substitution text. WHAT AN EARLIER PASS COULD NOT ESTABLISH, AND WHAT HAS NOW BEEN ESTABLISHED. (a) THE PRE-SUBSTITUTION THREE-LIMB TEXT IS NOW IN THIS ENTRY, sourced on 18 September 2026. It is printed on the departmental page for the notification that inserted the rule, https://www.incometaxindia.gov.in/w/45-notification-45-date-of-issue-24/03/2008, which serves Notification No. 45/2008, the Income-tax (Fifth Amendment) Rules, 2008. THAT PAGE CARRIES NO "Year:" STAMP; it prints "Upload Date: 24/03/2008" and the heading lines "Notification: 45 Date of Issue: 24/03/2008" and "NOTIFICATION NO. 45/2008, DATED 24-3-2008". It prints "[F. No. 134/09/2007-TPL]" at the foot, and no signature, no name, no designation and NO S.O. number — so the gazette number of the 2008 notification is still not established and none is stated. The one-half per cent figure in the third limb, which an earlier pass expressly refused to state because it had not been read, has now been read on that page and is stated. A NUMBERING POINT the reader should know about: the page prints the final paragraph, "For the purposes of this rule, the 'total assets' shall mean...", as "3." rather than as "(3)", which on its face would make it a clause of the amending rules rather than a sub-rule of rule 8D. It is sub-rule (3) of rule 8D, and what establishes that is the substituting notification, which directs that "sub-rule (3) shall be omitted" — there is no other sub-rule (3) for it to be talking about — read with footnote 79 on the rule page recording an omission by the same rules. The entry transcribes it as sub-rule (3) for that reason and records the page's own numbering here. (b) THE SUBSTITUTING NOTIFICATION'S NUMBER AND GAZETTE DATE ARE NOW ESTABLISHED. It is Notification No. 43/2016, F. No. 370142/7/2016-TPL, S.O. 1949(E), dated 2 June 2016, the Income-tax (14th Amendment) Rules, 2016, read at https://www.incometaxindia.gov.in/documents/d/guest/notification432016-pdf. It recites that it is made "In exercise of the powers conferred by section 295 read with subsection (2) of section 14A of the Income-tax Act, 1961 (43 of 1961)", that the rules "shall come into force on the date of their publication in the Official Gazette", that sub-rule (2) of rule 8D is substituted in the two-limb form this entry transcribes, and that sub-rule (3) "shall be omitted". It is signed "(Dr. T.S. Mapwal) Under Secretary to Government of India". Asked in terms whether it anywhere prints the pre-substitution text, it does not — it closes the citation and not the text, which is why the 2008 notification was needed. THE EARLIER FAILURE WAS AN ADDRESS FAILURE, NOT AN ABSENCE. The prior pass recorded that the search index returned Communications/Notification/Notification432016.pdf and that the PDF was a 404 at every casing and host spelling tried. That address was retried on this pass and is still a 404. The same document is served at /documents/d/guest/notification432016-pdf, and a 404 under /communications/notification/ is therefore evidence about the path and not about the document — the same lesson the library already records for the s.92C tolerance notifications. (c) TWO EDITIONS PRINTING THE TWO TEXTS: there are now two departmental sources, but they are not two editions of the rule page. The post-substitution text is on the rule page at /w/rule-8d-1; the pre-substitution text is on the 2008 notification page. No second edition of the rule page itself was reached — /w/rule-8d-2 and /w/rule-8d-3 remain 404 and were not retried this pass. CORROBORATION OF THE ENABLING PROVISION: https://www.incometaxindia.gov.in/w/section-14a-23 (Year: 2024 (No. 1)) prints s.14A(2) — the Assessing Officer shall determine the amount of expenditure "in accordance with such method as may be prescribed" — with footnote 78 on that page reading "See rule 8D", and prints the Explanation inserted by the Finance Act, 2022 w.e.f. 1-4-2022 with footnote 79, "Inserted by the Finance Act, 2022, w.e.f. 1-4-2022", and footnote 77, "Substituted for 'For the purposes of' by the Finance Act, 2022, w.e.f. 1-4-2022". The 2022 amendment to s.14A is the subject of a separate entry the library already holds and is not restated here. COPYRIGHT NOTE: the departmental /w/ pages carry the line "© Copyright. Taxmann Publications Pvt. Ltd." and some of their footnotes are editorial cross-references to that publisher's own titles. I have transcribed only footnotes stating a legislative fact and have reproduced none of the editorial cross-references. `decided_on` is 2016-06-02, the date of the substitution, which is what this entry is about. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that Rule 8D of the Income-tax Rules, 1962 was substituted by the IT (Fourteenth Amendment) Rules, 2016 with effect from 2 June 2016, so that the formula applicable to a given disallowance depends on the previous year; that as substituted, sub-rule (1) permits the Assessing Officer to determine the expenditure under sub-rule (2) only where, having regard to the accounts of the assessee of that previous year, he is not satisfied with the correctness of the claim of expenditure or with a claim that no expenditure has been incurred in relation to exempt income; that sub-rule (2) as substituted has two limbs, being the expenditure directly relating to income not forming part of total income, plus 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; and that the proviso caps the aggregate of those two limbs at the total expenditure claimed by the assessee. The pre-substitution text, which continues to govern earlier previous years, was not reachable on any departmental page and is not stated here; nor is the notification number or gazette date of the amending rules.
TaxSphere, “Statutory position — Rule 8D of the Income-tax Rules, 1962 was SUBSTITUTED with effect from 2 June 2016: the three-limb formula was replaced by a two-limb one, and the disallowance is now capped at the total expenditure claimed — which formula applies is a question of the year, and the answer is not the same for every year still open”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-rule-8d-substituted-with-effect-from-2-june-2016-the-two-limb-formula/ (validity last checked 2026-09-17)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Your own funds exceed the tax-free investments. Can interest still be disallowed proportionately?
The Assessing Officer has applied Rule 8D to an assessment year before 2008-09. Can he?
My whole exempt dividend income has been wiped out by the s.14A disallowance. Is that permissible?
I said I incurred no expenditure to earn my dividend income, and the officer simply applied rule 8D and disallowed a large sum. Can he go straight to the formula?
