Section 14: Expenditure Related to Income Not Included in Total Income
Section 14 of the Income-tax Act, 2025 deals with expenditure connected with income that does not form part of total income. From 1 April 2026, the Income-tax Act, 2025 replaced the Income-tax Act, 1961 for the new tax-law framework. The older Sections 14 and 14A remain important for earlier assessment years, pending proceedings and transition matters.
Section 14 of the Income-tax Act, 2025
The current Section 14 is titled "Income not forming part of total income and expenditure in relation to such income." In substance, it prevents a deduction for expenditure incurred in relation to income that does not form part of total income.
Sub-section (1): A deduction is not allowed for expenditure incurred in relation to income that does not form part of total income.
Sub-section (2): If the Assessing Officer, after considering the assessee's accounts, is not satisfied with the correctness of the expenditure claim, or with a claim that no such expenditure was incurred, the amount is to be determined by the prescribed method.
Sub-section (3): The provision also applies where expenditure is incurred during a tax year in relation to income not forming part of total income even though that income has not accrued, arisen or been received during that tax year.
Rule 14 of the Income-tax Rules, 2026
Rule 14 prescribes the method for determining expenditure in relation to income not included in total income. The amount is the aggregate of direct expenditure relating to such income and the prescribed investment-based amount.
Direct expenditure relating to income not forming part of total income plus 1% of the annual average of the monthly averages of the opening and closing balances of the value of investments whose income does not or shall not form part of total income.
The resulting amount cannot exceed the total expenditure claimed by the assessee.
What does Section 14 mean in practical terms?
The provision separates expenditure connected with income outside the taxable total income from expenditure that may otherwise qualify for deduction. An assessee should therefore identify direct expenditure connected with such income and maintain records capable of supporting the claim made in the return and during assessment.
The Assessing Officer's prescribed-method determination is linked to dissatisfaction with the assessee's claim after having regard to the accounts. The statutory test and the applicable rules should therefore be read together for the relevant tax year.
Legacy Section 14 of the Income-tax Act, 1961: Heads of income
Under Section 14 of the Income-tax Act, 1961, income was classified under specified heads for the purposes of charge and computation of total income, unless otherwise provided by that Act.
The former heading marked "B" in Section 14 had been omitted. The remaining heads provided the basic classification framework for computation under the 1961 Act.
Legacy Section 14A of the Income-tax Act, 1961
Section 14A of the 1961 Act disallowed expenditure incurred in relation to income that did not form part of total income. Where the Assessing Officer, having regard to the accounts, was not satisfied with the correctness of the assessee's claim, the expenditure was determined by the prescribed method. The provision also covered a claim that no expenditure had been incurred.
An Explanation inserted into Section 14A clarified that the provision applied even where the relevant exempt income had not accrued, arisen or been received during the previous year, provided expenditure had been incurred during that year in relation to such income. This amendment was stated to operate retrospectively from 1 April 2021.
The proviso to legacy Section 14A restricted use of that section as authority for reassessment under Section 147, enhancement, reduction of a refund, or an increase in liability under Section 154 for an assessment year beginning on or before 1 April 2001.
Which law should you check?
For a current tax-year issue beginning on or after 1 April 2026, start with the Income-tax Act, 2025 and the Income-tax Rules, 2026. For an earlier assessment year, appeal, reassessment, rectification, or other proceeding governed by the repealed 1961 Act, check the relevant version of Sections 14 and 14A, Rule 8D and the applicable transition or savings provisions.
Last reviewed: 27 September 2026. This page is a general legal-information resource; the applicable provision depends on the relevant tax year and facts.