PAYMENT TO -RELATED PERSON
Section
40A(2) PAYMENT TO -RELATED PERSON
Section
40A(2) applies where a person
has incurred any revenue expenditure on goods, services
or facilities and payment for the same is made to:
•
A related person; or
•
A person who has
substantial interest in the business of the assessee.
|
Assessee
(ie Payer) |
Related Person |
|
Individual |
Any relative of the individual specified u/s 2(41)
(ie spouse, brother, sister, lineal ascendant
or lineal descendant of the individual) |
|
Firm |
Partners
and their relatives [2(41)] |
|
Company |
Directors
and their relatives [2(41)] |
Disallowance
in case of Unreasonable Expenditure
If the payment made for the expenditure specified above is excessive or unreasonable having regard to the Fair Market Value (FMV)of the goods, services or facilities, that portion of the expenditure which is unreasonable or excessive shall be disallowed.
Example: Mr A has taken a godown on rent from his sister and has paid rent of Rs 5 lakhs during PY 2018-19 whereas the FMV of such rent was only Rs 4 lakhs. In this case, an amount of Rs 1 lakh shall be disallowed u/s 40A(2).
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