Example: Five separate invoices of Rs. 60,000 each were issued to a customer. The customer intends to make cash payment in installments of Rs. 10,000 each on daily basis. State the applicability of Sec 269ST and 40A(3)?

As per sec 40A(3), if any payment is made by an assessee to a person in a day above Rs.10,000, other than by account payee cheque/ draft or ECS through bank account, then expenditure shall be disallowed i.e the expenditure shall not be allowed as deduction. For this reason, generally cash payments by debtors to any person are made up to Rs.10,000 only per day. But this restriction applies only to a person who is making payment for business purposes (or for any expenditure by a charitable/ religious trust). If any expenditure is incurred by assessee for personal purpose, then he can make payment above Rs. 10,000 in cash in a day. Further, this does not bind the recipient i.e. shopkeeper to accept only up to Rs. 10,000 per day from any customer. He can accept up to Rs. 1,99,999 in a day from any customer as per the provisions of sec 269ST of the Act.

As per sec 269ST, Rs 2 Lakh or more cannot be respected by any mode other than account payee cheque/ draft/ ECS in respect of a single transaction. In this case the recipient can accept up to Rs. 1,99,999 per day from the customer as each invoice is less than Rs. 2 Lakh. However, the customer has to examine the applicability and impact of sec 40A (3)

The provisions of second circumstance of sec 269ST of the Act envisage that no single transaction should exceed the specified limit. Although each of such receipts on daily basis are within the prohibited limit and not covered by the first circumstance, such receipts would fall under the prohibited category as they pertain to a single transaction.

Invoice Date Invoice Amount Maximum Daily Cash Payment by Buyer

Sec 40A(3)

Aggregate Maximum cash which can be Received by seller against this Invoice

(sec 269ST)

Balance By Cheque/ Draft/ ECS
01/04/2020 Rs 2,90,000 Rs. 10,000 Rs. 1,99,999 Rs. 90,001
15/04/2020 Rs. 1,70,000 Rs. 10,000 Rs. 1,70,000 Nil

This is a very important condition which prevents circumventing the limit by splitting it over several days. In this connection, it is important to compare these provisions with those of section 40A(3) of the Act wherein no such condition is imposed even after certain amendments in the sec 269ST. Therefore, it is a general practice to make payments of Rs 10000 or less on several days in relation to a single transaction so as to remain outside the purview of section 40A(3). But in case of a buyer who is also a trader the provisions of sec 40A(3) shall be applicable and any payment above Rs. 10,000 in cash to a person in a day shall be disallowed. But if a trader issues invoices of Rs. 2,00,000 or more, the aggregate payments which can be received against these invoices is Rs. 1,99,999.

The above provisions of sec 40A(3) and sec 269ST are very well explained in the following table.



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January 2021