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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

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164 Comments

  1. F PJAIN says:

    It is elegible in retail business if payment made to different suppliers A,B,C and so on total payment made more then Rs 20,000/- for single day purchase by cash pl note that we are not paying cash 20,000/- to a single party for one day purchase even for multiple bills of single party

  2. Akanksha says:

    If we rent a flat to a non-Indian tenant for Rs 45000 with a court agreement and he pays in cash to the two Owners of the flat. The owners split the cash in half i.e. Rs 22500 each and deposit the amount in their bank. What are the rules that will apply here ? How IT department will tackle this case and what should we do ? The tenant does not have a bank account in India and hence insists to pay in cash. What is the way to correct it ?

  3. Pradeep says:

    Please tell me sir if i have given a bearer cheque less than 20000 more than one in different days but party present all cheque same day at bank payment allowed or disallowed

  4. Deepak says:

    I have pvt ltd company, doing business of real estate .under some circumstances I have made payments of more than 20000/- in a single day to a single purchaser for buying a land, so I wanna know ,Wether this amount will treated to my income or not

  5. kamal Patidar says:

    Dear Sir,

    we have Made Cash Payment above 20000/-for RTO Office My Loading Vehical Life time Registration Charges.

    Please Give Me Advice I Can Make Payment above 20000/-

  6. Rajesh Kumar says:

    Where an amount exceeding Rs. 20,000/- is tfd. from a debtor account to a creditor account on their request, provisions of Sec. 40A(3) attracted ?

  7. dipesh says:

    hello sir
    i have doubt about this section
    if an assessee has incur rupee 1,10,000 in cash for his personal expenses like paid bill of his own house construction is it also disallowed?

  8. Balvant Avsare says:

    Dear Sir,

    How much maximum amount I can deposit with any Public Sector bank at a time towards payment of any type of Central Government Tax or State Government Tax? Is there any limit for this? I was told that certain taxes are paid by way of e-payment. Which are these taxes?

  9. hitesh says:

    Respected sir
    i am a automobile dealer and i am purchased my trading goods from various dealer and various station but when the bill amount are more then 20000/- can i pay this tading goods amount in cash. sir i have face many problem due to more dealer not accept cheque of my firm they only want cash against the bill. so please requred to guide me can i purchased trading goods more then 20000/- in against of cash bill. please sir help me

  10. Sanjana says:

    I have made the voucher below rs. 20000/- for diff. days. In a year i have paid the sum of Rs. 100000/- by cash for income tax purpose what effect should go for pvt. ltd. co. return filling purpose . Pl. Note that this is deposit amt. we have paid .

    Actually our co. take a rental basis factory but the factory is not good condition so that exp. incurred on behalf of that owner paid by us . so that exp. we have recovered as a deposit from him

  11. MA Gafoor says:

    i want to know that any rules in IT is that the company proprietorship can pay the salary to our employee in cash > 30,000/- if yes so which rules u/s and how much cash can pay in a month please advice me
    Thank.

  12. pinki says:

    help
    for example :- a one person by bike 50,000 and he pay in advance to 19,000.please tell me how many days he pay his balance payment amd what his interest,plz tell me how calculate and what a formula.

  13. ujjwal goyal says:

    if there is a concern who has a dealership of a motor bike company ….
    they receives an advance of rs 21000 from a customer in cash nd book a bike but after 2-3 days the costumer comes back and tell them that he is not able to purchase bike and take refund of 21000 in cash…

    is this cash payment made by such concern of rs 21000 in cash for return of advance money is disallowed or not????
    please answer
    ujjwalgoyal15@gmail.com

  14. Arun says:

    I want to pay 60k cash to one party , can i pay 20k one day 20k second day, and rest third day.
    what is the cash payment limit for the year for one party/ or individual

  15. Kalyan says:

    Sir,

    My company paid Rs.300000/- towards cost of Iron towards cost of constructing another branch in cash. Whether it attracts 40A(3)section?

  16. V J Raghunandan says:

    I have a question regarding cash payments of above Rs.20,000/-. I understand that this limit of Rs.20,000/- is not applicable if I want to avail of a loan on my deposits with any Bank – that is, if I am availing a loan on deposit, I can take the loan in cash even if it is beyond Rs.20,000/-. Is my understanding right? (2) This limit of Rs.20,000/- also does not apply to payment of interest. If I have a deposit of say, Rs.5.00 Lakh with a Nationalised Bank and presuming the ROI to be at say, 10.00% p.a. and if the interest pay-out is half-yearly, then, I can insist that the Bank makes the interest payment in cash every half-year even if the same is above Rs.20,000/-. Is it correct? I request any of the enlightened readers to educate me on these points.

  17. Rajesh says:

    My question is that we sell products .Although the sale is below RS 20000/-.They insist on cash memo without any name that is Cash Sale. I would like to know what is the maximum  limit of cash sale in a year as per Norms.

  18. Sandip Kumar Dalal says:

    It is understood that nobody can pay in excess of Rs.20,000/- to a party on a single date in cash as per rule 6DD.
    But I want to get confirm what is the annual limit if a single voucher/paid on single date below Rs.20,000/-.

    I seek your kind advise

  19. Kuldeep Sharma says:

    Suppose A has purchase goods from B. C owes A some money. C on instructions from A makes payment by an Account Payees Cheque to B. Will such payment by hit by section 40(A)(3)

  20. Manoj Kumar says:

    If i am going to holiday and booked a room in hotel , if my check out bill amt exceed 20,000/- . Is it compulsory to submit PAN copy there.

  21. Dr. Ibadatpreet says:

    i am a masters student in dentistry in amritsar. we are provided with the monthly pay of 20,000 rupees. the course duration is 3 years.however, the college authorities have provided me the pay of my all the three years in the current year. A tax of about 45,000 has been calculated by them. But is there any way to save it. is the income of 3 years taxable in 1 year. can’t we divide it in three years as I was supposed to get? Help?

  22. Pradeesh says:

    I 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)

  23. amal says:

    as we know that we can’t pay more than 20000/- cash to a party in a single day, is there any barrier / rules regarding any received entry .

  24. smita says:

    can we deposit more than Rs. 20,000/- in our contractors saving account instead of paying in cash in a single day. doese this will be disallowed kindly guide in this matter.

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