Income Tax 2025

Appearance

Amounts not deductible. ​

94(1) ​

Irrespective of anything contained in section 93, the following amounts shall not be deductible in computing the income of any assessee chargeable under the head “Income from other sources”:—

  • (a) any personal expenses of the assessee; or
  • (b) any interest chargeable under this Act, payable outside India, on which tax has not been paid or deducted under Chapter XIX-B; or
  • (c) any payment chargeable under the head “Salaries”, if it is payable outside India, unless tax has been paid or deducted under Chapter XIX-B.

94(2) T ​

he provisions of sections 29, 35(b)(i), and 36 shall apply in computing the income chargeable under the head “Income from other sources” as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

94(3) ​

For an assessee, being a foreign company, the provisions of section 59 shall apply in computing the income chargeable under the head “Income from other sources”, as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

94(4) ​

In computing the income from winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, or from gambling or betting of any form or nature, no deduction for any expenditure or allowance related to such income shall be allowed under this Act.

94(5) ​

Sub-section (4) shall not apply in computing the income of an assessee, being the owner of horses maintained for running in horse races, from the activity of owning and maintaining such horses.

94(6) ​

In this section, “horse race” means a horse race upon which wagering or betting may be lawfully made.

Explanation

Section Summary: ​

Section 94 of the new income tax law outlines specific amounts that are not deductible when computing income under the head "Income from other sources." It also clarifies how certain provisions apply to foreign companies and specific income types like winnings from lotteries, races, or gambling. The section ensures that personal expenses, certain payments made outside India, and specific types of income are not eligible for deductions.

Key Changes: ​

  1. Expanded Scope of Non-Deductible Expenses: The section explicitly disallows deductions for personal expenses, interest, and salary payments made outside India unless tax has been deducted or paid under Chapter XIX-B.
  2. Foreign Companies: Provisions of Section 59 (related to business income) now apply to foreign companies for computing "Income from other sources."
  3. Gambling and Lottery Winnings: No deductions are allowed for expenses related to income from gambling, lotteries, or similar activities, except for horse owners maintaining racehorses.
  4. Horse Racing Exception: Owners of racehorses can claim deductions for expenses related to maintaining horses, unlike other gambling or betting income.

Practical Implications: ​

  1. Taxpayers: Individuals or entities earning income from gambling, lotteries, or similar activities cannot claim deductions for related expenses, increasing their taxable income.
  2. Foreign Companies: Foreign companies must now apply Section 59 provisions when computing "Income from other sources," aligning their treatment with domestic businesses.
  3. Compliance Burden: Taxpayers making payments outside India (e.g., interest or salaries) must ensure tax is deducted or paid under Chapter XIX-B to claim deductions.
  4. Horse Owners: Owners of racehorses can deduct expenses related to maintaining horses, providing a unique exception in the gambling/betting category.

Critical Concepts: ​

  1. Income from Other Sources: This refers to income that does not fall under salaries, business/profession, capital gains, or house property.
  2. Chapter XIX-B: Pertains to tax deduction at source (TDS) on payments made to non-residents.
  3. Section 59: Governs deductions for business income, now extended to foreign companies for "Income from other sources."
  4. Horse Race: Defined as a race where wagering or betting is legally permitted.

Compliance Steps: ​

  1. Documentation: Maintain records of payments made outside India, ensuring TDS compliance under Chapter XIX-B.
  2. Reporting: Disclose income from gambling, lotteries, or similar activities without claiming related expenses.
  3. Foreign Companies: Apply Section 59 provisions when computing "Income from other sources."
  4. Horse Owners: Keep detailed records of expenses related to maintaining racehorses to claim deductions.

Examples: ​

  1. Gambling Winnings: If an individual wins ₹10 lakh from a card game, they cannot deduct ₹2 lakh spent on entry fees or other expenses. The entire ₹10 lakh is taxable.
  2. Foreign Interest Payment: A company pays ₹5 lakh as interest to a non-resident. If TDS is not deducted under Chapter XIX-B, the ₹5 lakh cannot be claimed as a deduction.
  3. Horse Owner: A racehorse owner earns ₹20 lakh from horse racing and spends ₹8 lakh on maintaining the horses. The ₹8 lakh can be deducted, reducing taxable income to ₹12 lakh.

This section ensures clarity on non-deductible expenses and aligns treatment across different income categories and entities.