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deductibility of expenditure incurred to earn dividend


Ankit Sharma

2014-09-26

Can expenditure incurred to earn dividend income (from both Indian companies and foreign companies) be claimed as deduction? Please give reference to the section number.

Rahul Rai

2014-09-26

Dividend Income in India are exempted from income tax. Refer section 14A:

Expenditure incurred in relation to income not includible in total income

14A. [(1)] For the purposes of computing the total income under this Chapter, 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 under this Act.]

[(2) 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.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :]

[Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]

Its clear from the above reading that expenses incurred to earn dividend income is not allowed since dividend income is not includible in toatal income.

However expenses incurred to earn dividends from foreign are deductible from the dividend income.

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