Disallowance of Expenditure made in Cash- Section 40A(3) & 3(A)

(Read with Rule 6DD)

(Read with Section 269 ST & Section 271 DA of Income Tax Act, 1961)

(Read with Notification 08/2020)

Section 40A(3) Cash Payment in Current Year

Any payment made to a Person, in a day, for a single Bill exceeding Rs. 10,000 (For Goods Transport Agency Rs 35,000) other than prescribed mode will be disallowed under this Section.

Example 1

Suppose Mr. A makes the following Payment in cash

Date To Party Invoice No Amount Total Disallowance under 40A(3) Reason
01-Apr-20 B ABC1/20-21 12000 12000 12000 Single Payment on same date for Single Bill for Same Party exceeds 10000
02-Apr-20 C ABC2/20-21 9000 9000 Nil Single Payment on same date for Single Bill for Same Party does not exceeds 10000
03-Apr-20 D ABC3/20-21 5000 14000 14000 Multiple Payments on same date for Single Bill to Same Party exceeds 10,000
04-Apr-20 E ABC4/20-21

Amount Rs 30000

5000 30000 30000 Multiple Payments different dates  for Single Bill to Same Party exceeds 10,000
05-Apr-20 6000
06-Apr-20 9000
07-Apr-20 7000
08-Apr-20 3000

Where any Expenditure is made and deduction is allowed in previous year but payment is made by other than prescribed modes exceeding Rs. 10,000 then such expenditure will be treated as Income of current year.

Section 40A(3A) Disallowance for Expenditure allowed on Accrual Basis in Previous Year

Rule 6DD- Exceptions to Section 40A(3) and 40A(3A)

In the Following cases, even if payment is made in other than prescribed modes, no disallowance will be attracted.

1) Any Payment made to:

  1. RBI or any Bank
  2. State Bank of India or any of its subsidiary
  3. Any Co-operative Bank or Land Mortgage Bank
  4. Any Primary Agricultural Society
  5. Life Insurance Corporation

2) Payment made to Government for any Taxes, Duties, Registry etc- Such payment shall be made in Legal Tender.

3) Payment made by-

  1. Letter of Credit
  2. Mail or Telegraphic Transfer
  3. Book Adjustment
  4. Bill of Exchange

4) Any Payment made for any Liability through book adjustment against any goods supplied/services rendered by person on whom liability was there.

5) Payment made for the following purposes to the Cultivator, Grower or Producer-

  1. Agriculture or Forest Produce
  2. Produce of Animal Husbandry or Dairy or Poultry Farming
  3. Fish or Fish Products
  4. Produce of Horticulture or Apiculture
  5. Products manufactured or processed without the aid of Power in Cottage Industry.

6) Payment made to person who resided in village and carries any business or profession in such village and on the date of payment, that village is not served by any Bank.

7) Payment made to Employees or their legal heirs for purpose of retirement, retrenchment, resignation, discharge or death and such payment is not exceeding 50.000

8) Payment made to Employee who is posted to another place for continuous period of 15 days or more- Such Payment shall be made after deducting TDS & Employee shall not have Bank Account at that Place.

Section 269 ST Mode of Undertaking Transaction

No Person shall Receive an amount of 2,00,000 or more.

  • in aggregate from a person in a day
  • for single transaction

through other than modes prescribed for payments under Notification 8/2020

Exception to Section 269 ST

Any Receipt by

  • Government
  • Banks
  • Post Office Savings Bank
  • Co-operative Bank

Section 271 DA Penalty for Failure to comply with Section 271 DA

Penalty shall be equal to Amount to such Receipt.

Notification 8/2020 Other Prescribed modes-

(a) Credit Card;

(b) Debit Card;

(c) Net Banking;

(d) IMPS (Immediate Payment Service);

(e) UPI (Unified Payment Interface);

(f) RTGS (Real Time Gross Settlement);

(g) NEFT (National Electronic Funds Transfer), and

(h) BHIM (Bharat Interface for Money) Aadhar Pay

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  1. vasudeo patil says:

    Thanks for commenting.. Yes, you are absolutely correct, Payment made to E will not attract disallowance of 40A(3), as payments made for single bill on different dates not exceeding 10000 will not be disallowed. please explain “E”

  2. MANOHAR CH L says:

    Mr. Vikas, payments on different dates to Party E are not a violation of S.40A(3) since it is clearly mentioned limit of 10,000 is per day only. Check once.

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September 2021