Question

Explain disallowed expenses for business?​

Answer 1

Answer:

While computing the profit and gains from business or profession, there are certain expenditures which are disallowed. This means that the income tax department does not allow the benefit of such expenditures and the assesses are required to pay taxes on such expenditures by adding it back to the net profits.

Answer 2

While computing the profit and gains from business or profession, there are certain expenditures which are disallowed. This means that the income tax department does not allow the benefit of such expenditures and the assesses are required to pay taxes on such expenditures by adding it back to the net profits. There are two primary reasons for disallowance of any expenditure:

The tax amount required to be deducted on certain expenditures are not deducted while making the payment.

The expenditure does not implicitly relate to the conduct of such business or profession;

Any expenditure which is disallowed attracts the tax at 30% rate (25% in case of certain companies) but alongside, interest, penalty, and prosecution provisions are also triggered.

The Income Tax Act states certain circumstances where if the TDS deductible on payments has not been deducted appropriately, such expenses are expressly disallowed.

The various provisions which relate to disallowance on account of TDS default are as follows:

Payment (for other than salaries) outside India or to a non-resident or foreign company (for example payments for interest, royalty, technical fee, etc.)

The repercussions under various scenarios of TDS default are given below:

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