Section 13 & Section 14
Income Tax Act, 2025
Heads of Income · Omission of Interest on Securities · Expenditure Relating to Exempt Income (Earlier Section 14A)
Introduction
On Day 3 of the 15 Days Income Tax Act, 2025 Series, we focus on two foundational provisions that every tax student and professional must clearly understand. These sections form the structural backbone for classifying income and disallowing related expenses — mistakes here directly impact tax computation, assessments, and exam scores.
Section 13
Heads of Income — defines the five heads under which all income must be classified before computing tax liability.
Section 14
Exempt Income & Expenditure — disallows expenses incurred to earn tax-exempt income. Corresponds to old Section 14A of the 1961 Act.
Section 13 – Heads of Income
Why Heads of Income Matter
Income Tax law does not tax income randomly. Every income must first be classified under a specific head, because different heads have different computation rules, deductions vary from head to head, and tax rates and set-off provisions all depend on correct classification.
✅ Core Principle
Correct Classification = Correct Tax Liability. Even a small mis-classification between heads can lead to wrongful disallowances, incorrect set-off of losses, and adverse assessments.
Interactive Diagrams
👆 Tap any head to see details
Historical Change – Interest on Securities
Under Section 14 of the Income-tax Act, 1961, there was an earlier separate head:
❌ Head “B — Interest on Securities” (Omitted)
This head was omitted by Act 26 of 1988, Section 8, with effect from 1st April 1989.
- Since 1-4-1989, Interest on Securities is no longer a separate head
- Such income is now taxable under Head E — Income from Other Sources
- The Income-tax Act, 2025 continues this simplified structure with only 5 heads
- This is a frequently tested factual point in exams and professional interviews
Section 14 – Expenditure on Exempt Income
Section 14 of the Income-tax Act, 2025 corresponds to Section 14A of the Income-tax Act, 1961. The substance of the law remains the same, but the drafting has been simplified and structured to reduce litigation.
🔑 Core Principle
If income is exempt from tax, any expenditure incurred to earn that income shall not be allowed as a deduction. This principle ensures that tax-free income does not indirectly reduce taxable income through expense deduction.
Section 14 — Three Sub-sections Explained
Core Provision
No deduction shall be allowed for any expenditure incurred by the assessee in relation to income which does not form part of Total Income under the Act.
- Applies to any expense — big or small
- Covers all types of exempt income
- No exceptions in the basic rule
When AO Can Intervene
The Assessing Officer can step in when not satisfied with the assessee’s expense claim:
- (a) Wrong expense amount claimed
- (b) Assessee claims nil expense incurred
- AO must use prescribed statutory method
- Cannot act arbitrarily
Even If Income Not Received
Even if exempt income has not accrued, not arisen, or not been received during the year — the related expenditure is still disallowed if it was incurred.
- Eliminates timing-difference tax planning
- Significantly reduces litigation
- Carried forward from 1961 Act
Comparison: 1961 Act vs 2025 Act
| Particulars | 1961 Act | 2025 Act |
|---|---|---|
| Heads of Income | 6 (earlier, before 1989) | 5 Heads |
| Interest on Securities | Separate head (omitted 1989) | Merged → Other Sources |
| Heads Section | Section 14 | Section 13 |
| Expense Disallowance | Section 14A | Section 14 |
| Drafting Style | Complex, explanatory | Clear, clause-based |
| Litigation Scope | High — ambiguous language | Reduced intent |
| AO Intervention | 14A(2) — same principle | 14(2) — more structured |
| Timing Clarification | 14A(3) — carried forward | 14(3) — simplified text |
Key Exam Takeaways
Interest on Securities has NOT been a separate head since 1-4-1989 — now taxed under Other Sources.
Exempt income always triggers expense disallowance under Section 14(1).
Even if exempt income is not received or not accrued, related expenditure can still be disallowed — §14(3).
AO can recompute disallowance under §14(2), but only through prescribed method — not arbitrarily.
Section 14A of 1961 Act = Section 14 of 2025 Act — same principle, simplified drafting.
The Income Tax Act 2025 has 5 heads of income. The 6th head (Interest on Securities) was removed in 1989.
Watch the Day 3 Reel
Section 13 & 14 — Income Tax Act 2025 Explained
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Notes include watermark · © CA Devesh Thakur | eTaxSave.com
📣 What’s Next in the Series?
This was Day 3 of the 15 Days Income Tax Act, 2025 Series. In the coming days, we will cover computation mechanisms, deductions and disallowances, residential status, and practical illustrations with exam-focused insights.
Prepared by CA Devesh Thakur as part of the 15 Days Income Tax Act, 2025 learning series. Follow on Instagram @cadeveshthakur.official and comment “IT-3” to get the full notes!
📥 Day 3 IT Act 2025 Notes
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© CA Devesh Thakur | eTaxSave.com
