Section 14(1)

Irrespective of anything to the contrary contained in this Act,

for the purposes of computing the total income under this Chapter,

no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income.

Exempt Income = Income which does not form part of the total income

Section 14(2)

Where the AO, having regard to the accounts of the assessee, is not satisfied with—

(a) the correctness of the claim of expenditure incurred by the assessee; or

(b) the claim made by the assessee that no expenditure has been incurred,

in relation to [Exempt Income] income which does not form part of the total income under this Act,

he shall determine such amount of expenditure in accordance with any method, as may be prescribed.

Rule 14(1)

The expenditure in relation to [Exempt Income] income which does not form part of the total income

shall be the aggregate of following amounts: —

(a) the amount of expenditure directly relating to [such] income which does not form part of total income; and

(b) an amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income.

Rule 14(2)

The amounts referred to in sub-rule (1) shall not exceed the total expenditure claimed by the assessee

Section 14(3)

Irrespective of anything to the contrary contained in this Act,

the provisions of this section shall apply in a case where any expenditure has been incurred during any tax year in relation to [Exempt Income] income which does not form part of the total income under this Act,

but such income has not accrued or arisen or has not been received during that tax year.