Follow Us :

Income Tax – Payment of More Than Rs 20,000/- (Amendment In Rule 6D)

Cash payment of more then twenty thousand in a day to Single person

Rule 6D Of The Income Tax Rules Rule Deals With, Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made by a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.

RULE BEFORE AMENDMENT

The main part of the Rule earlier read as,No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely :-

RULE AFTER AMENDMENT

Now the amended Rule reads as, No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section ( 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 hereunder, namely:-

In the 2008 Finance Act, Section 40 A has been amended as follows:-

Amendment of section 40A

In section 40A of the Income-tax Act, for sub-section (3), the following subsections shall be substituted with effect from the 1st day of April, 2009, namely:-

“(3) Where the assessee incurs any expenditure in respect of which 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, no deduction shall be Allowed in respect of such expenditure.

(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees:

Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection 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 such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.”

The Government explained this amendment as follows:-

Amendment to the provisions of section 40A (3) of the Income-tax Act, Section 40A (3)(a) of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000 /- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Section 40A (3)(b) also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.

Section 40A (3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion. It has come to notice that the provisions of section 40A (3) are being circumvented by splitting a particular high value payment to a person into several cash payments, each below Rs. 20,000/-. This splitting is also resorted to for payments made in the course of a single day. Courts have also held that the statutory limit in section 40A (3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. According to the judicial opinion, the words used are `in a sum’, i.e., single sum.

Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction, the rigours of section 40A (3) will not apply.

To overcome the splitting of payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that 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, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A , as the case may be.

To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-, Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment.

The proviso to the proposed sub-section (3A) provides that in certain prescribed cases and circumstances the provisions of proposed sub-sections (3) and (3A) shall not apply.

This amendment will take effect from 1st April, 2009 and will accordingly apply in relation to assessment year 2009-10 and subsequent assessment years.

Accordingly Rule 6DD is amended accordingly.CBDT Notification No. 97/2008 [F.NO. 142/10/2008- TPL], Dated: October 10, 2008

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

164 Comments

  1. B Kumar says:

    If IT returns for the Asst Year 18-19 [ AUDITED] for a partnership firm IS NOT SUBMITTED WITHIN 15th October 2018, what is the penalty and interest . The profit is within 30 to 40thousand and the advance tax has been paid.

  2. prakash gupta says:

    we govern a hospital under institutional trust. Some time we have to make ‘refund’ in cash of the balance deposit amount from patient more than 10000/- . Is it allowable ?

  3. Balraj says:

    i am supplied rail coach parts to indian railways my question is my sale value is 41,81625.00 including freight amount ( freight is 22500) how to show gstr-1 return my taxable amount is 39,60000 igst is @5% 1,98000+Freight is 22500 +1125 total invoice amount is 41,81,625

  4. sumeet agarwal says:

    I am having a question, i am a small trader and purchases goods locally. Almost each purchase bill is below Rs.20000, can I make cash payment against each bill even if my total purchase with each creditor is above Rs100000 in a year. Now my trader are saying that we can’t accept cash against the bill. Kindly suggest.

  5. mallikarjuna MG says:

    Payment made to contractors by cash per day more than Rs 20000 but they have deducted TDS @ 1%. is this expenditure is allowed or not?

  6. Prateek Modi says:

    Sir,

    I am having a query regarding advance cash payment to employee for expenses above Rs. 20000. Moreover, the same is shown as a receipt from the same employee and narration in tally is given as “being cash adjusted through expenses” after few days. Is the company’s contention in this regard correct?

  7. GAURAV GOGIA says:

    Hi friends, i paid Rs. 100000/- for foreign flight ticket in cash and foreign tour is for business purpose. such expenses is more than Rs 20000/- in cash. whether Provision of section 40A(3) shall apply to company? or expenditure will allow to company

  8. NR JAGANATHAN says:

    I propose to sell my house property. The registered value is xxx. The sale consideration is more than the registered value. I propose to deposit the capital gain(LTCG) amount(difference between registered value and registered value) and excess amount(difference between sale consideration and registered value)received by way of DD in LTCG account. I hope this is nota violation of the IT Act. Incidentally I would be entering into a Sale Agreement for the full value.

  9. Ajay says:

    Does Sec 40A(3a) apply to a case where in cash payment is made in excess of Rs 20,000 against the same expense in a day but to different persons (Individual persons payment does not exceed Rs 20,000)

  10. Rajat4 says:

    have a expense bill of Rs500000/- and made payment of amounts less than 20000/- in various days(single day amounts not exceeding 20000/-). Is it applicable for disallowance u/Sec 40(A)(3)

  11. Surendra Choudhary says:

    If a company give advance to his employee Rs. 30,000/- in cash at a time and the employee paid by cash various bill (expenditure)behalf of company, but not more than 20000 of a particular bill….
    is it allowed or disallowed ……

  12. DESHRAJ says:

    Dear all,

    if i have a expenses of 40,000/- and i will pay this amount by my debit or credit card bcse company give expenses amt in my personal account, will be count in cash transection ?, what entry i entered in accounts please suggest me

  13. LOKESH SHARMA says:

    sir i need daily update about taxation (including sale tax) as per our requirement plz. povide to me

    Regads

    LOKESH SHARMA

  14. harshit darji says:

    i am owner of the company.dear all experts if i paid 30000 salary with 3000 hra to my employee then is it allowable expenses?

  15. Ronak gala says:

    Suppose to a finance company we pay the amount 22125 i.e more than 20000 because the Cheque was bounced so as per their policy they took cash as EMI. But this fact is not covered under the Rule 6DD but it is genuine case and thre was no intention as to evasion which is the core purpose of this section 40A. Kindly give the Solution

  16. Dhruv Pandey says:

    Dear Sir,
    if we pay to above 20000.00 in a day same party, what will we face problam please tell me.

    i want to know

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
March 2024
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031