Payment to specified persons not deductible under certain circumstances - (New) Section 36(2) and (3) / (Old) Section 40A(2)

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....€¢ Is the price higher than what you'd pay an unrelated party? • Example: Paying Rs.10 lakh for a service worth Rs.4 lakh. (b) Legitimate business needs • Was the expense actually required for the business? • Even a fair-priced expense can be disallowed if unnecessary. (c) Benefit derived • Did the assessee actually gain from the expense? • If no real benefit, it may be seen as a sham or inflated transaction. Only the excess or unreasonable portion is disallowed. Not the entire expense. Sub-section (3): Definition of "specified person" & "substantial interest" (a): Who is a specified person? (A) Direct relationships (simple category) These are stra....

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....assessee, being-- • (A) an individual or his relative; or • (B) a company, its directors or their relatives; or • (C) a firm, its partners or their relatives; or • (D) an association of persons, its members or their relatives; or • (E) a Hindu undivided family, its members or their relatives, • has substantial interest in the business or profession of such person; Under Section 40A(2) of the Income Tax Act, 1961 [ Upto 31.03.2026 ] Section 40A(2)(a) of Income Tax Act authorizes the Assessing Officer to disallow deductions on certain expenses. Where the assessee incurs any expenditure, in respect of which payment has been made or is to be made ....

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....sion of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member, or any other company carrying on business or profession in which the first mentioned company has substantial interest; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or any relative o....