PAYMENT TO -RELATED PERSON
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)
Any relative of the individual specified u/s 2(41) (ie spouse, brother, sister, lineal
ascendant or lineal descendant of the individual)
Partners and their relatives [2(41)]
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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