Doubt on section 14A read with rule 8D

I just read section 14A along with rule 8D

rule8D says we have to multiply the GENERAL INTEREST with the avg investments, income from which are exempt

and then the result is to be divided by the avg of total of the asset side

Doubt 1= suppose exempt income is 2,00,000 from share A, B nd we have invested in share A, B ,C so while calculating avg of investments from exempt income WHEATHER investment in Share C will be considered or not.

Doubt 2= Avg of total of asset side is to be taken in this case if the balance sheet contains MISC. EXP. whether it will be considered or ignored.

Replies (3)

Dear Ankit,

1) Investment in C will be considered in the "Avg of Investment (Numerator)" if it generates tax free income like dividend or exempt interest. Where as if C is an instrument that generates Taxable Income then it will be excluded

2) Misc. expenditure will remain included in the "Total Assets (Denominator)".

Very nicely explained. While calculating average of investments it is not necessary that the investments have generated any income till the time the income generated will be like dividends which will be exempt. In case of debentures who generate interest income should not be included in the average investments.

In case of Total Asset Average Misc Exp being not present any actual asset in books should be ignored while current liablities which are deducted from Current asset for Net current asset should be added to found Total Asset.

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