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Cash payment exceeding 20000 section 40a(3)(a)

Cash payment exceeding 20000 section 40a(3)(a)

Cash payment exceeding 20000 Sec.40A(3) – Payment Exceeding Rs.20,000 paid otherwise than by account payee cheques or bank drafts.Check out the complete details of Cash payment exceeding 20000 Sec.40A(3) in below file.

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The provisions of section 40A(3) are given below-

The following conditions should be satisfied-

Condition one

The Assessee incurs any expenditure which is otherwise deductible under the other provisions of the Act (ie. Sec 30 to 37) for computing business/profession income . The amount of expenditure exceed Rs.20,000. Eg. expenditure for purchase of raw material, trading goods, expenditure on salary, etc.)

Condition two

A payment or aggregate of payments made to a person in a day in respect of the above expenditure exceeds Rs.20000.(Rs.35000 in case of payment made for plying , hiring or leasing goods carriage)

Condition threeThe payment mentioned in condition two is made otherwise than by an account payee cheque or an account payee demand draft.

If the above conditions are satisfied then 100 percent of such payment will be disallowed.

Sec 40A (3A) Where deduction was claimed earlier on due basis and payment is made in the current year-

A special provision has been made in respect of those cases where deduction was claimed earlier on due basis. This provision is enumerated as follows:-

1The taxpayer had claimed a deduction in respect of an expenditure in any of the earlier years .
2The amount of deduction exceeds Rs.20000
3Payment is made in respect of aforesaid liability
4The payment exceeds Rs.20000
5The payment is made otherwise than by an account payee cheque or draft.

If the above conditions are satisfied ,the payment so made shall be deemed to be the business income of the taxpayer of the previous year in which the payment is made. No specific provision has been made that the payment so made shall be taxable as business income  even if the business has been discontinued .This rule will,however , be not applicable in the exception given by rule 6DD.

Rule 6DD:- Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made to a person in a day,  otherwise than by an account payee cheque  drawn on a bank or account payee bank draft.

No dis allowance under subsection (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under subsection (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified here under, namely :—

(a)   where the payment is made to—

  • the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
  • the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);
  • any cooperative bank or land mortgage bank;
  • any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949);
  • the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);

(b) where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender, such as a payment of direct taxes,customs duty,excise,sales tax,etc;

  • where the payment is made by—
    • any letter of credit arrangements through a bank;
    • a mail or telegraphic transfer through a bank;
    • a book adjustment from any account in a bank to any other account in that or any other bank;
    • a bill of exchange made payable only to a bank;
    • the use of electronic clearing system through a bank account;
    • a credit card;
    • a debit

Download Cash payment exceeding 20000 section 40a(3)(a)

Cash payment exceeding 20000 Sec.40A(3)

Explanation.—For the purposes of this clause and clause (g), the term “bank” means any bank, banking company or society referred to in sub­clauses (i) to (iv) of clause (a) and includes any  bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India;

(d)  where the payment is made by way of adjustment against the amount of any liability incurred by  the payee for any goods supplied or services rendered by the assessee to such payee;

(e)   where the payment is made for the purchase of—

  • agricultural or forest produce; or
  • the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or
  • fish or fish products; or
  • the products of horticulture or agriculture,

to the cultivator, grower or producer of such articles, produce or products;

This exception is however not be available on the payment for the purchase of livestock,meat,hides and skins from a person who is not proved to be the producer of these goods and is only a traders,broker or any other middlemen by whatever name called –Circular No.4/2006,dated March 29,2006.

(f) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;

(g)  where the payment is made in a village or town, which on the date of such payment is not served   by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;

  • where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees;
  • where the payment is made by an assessee by way of salary to his employee after deducting the income­tax from salary in accordance with the provisions of section 192 of the Act, and when such employee—
    • is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and
    • does not maintain any account in any bank at such place or ship;

(j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;

  • where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;
  • where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his

Cash payment exceeding 20000 Sec.40A(3) Explanation—For the purposes of this clause, the expressions “authorized dealer” or “money changer” means a person authorized as an authorized dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.

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