Rule 6DD [Exception to Section 40A(3)]: Cases where CASH payment exceeding Rs. 10,000 is Allowed:-

1. Salary of Employee after deducting TDS where, 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 & that employee does not have any bank accounts at that place,

2. Where any payment is made to an employee 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 Rs 50,000.

for general understanding:

Terminal benefit is the last amount paid to employee either on termination or resignation or in other cases. Firstly we have to check whether Sec 40A(3) is attracted or not and after that check whether the transaction is covered under Rule 6DD. This means if the transaction in which section 40A(3) is attracted and covered by Rule 6DD then that transaction will be allowed irrespective of amount transacted in cash.

Please note that, if in any case Sec 40A(3) is not attracted then there is no need to check the applicability of Rule 6DD.

For Example:

Case 1: 

Number of days employee continuously posted is 18 and payment made to employee is Rs. 30,000 in cash. Whether such expenditure is disallowed?

Sol: Check firstly whether Sec 40A(3) is attracted or not (i.e amount paid in cash exceed Rs. 10,000) and then check whether the transaction is covered under Rule 6DD or not (i.e for temporary transfer case, no. of days are 15 days or more)?. In this case conditions of both the sections are satisfied hence amount of Rs. 30,000 is allowed.

Case 2:  Number of days employee continuously posted is 9 and payment made to employee is Rs. 15,000 in cash. Whether such expenditure is disallowed?

Sol: Check firstly whether Sec 40A(3) is attracted or not (i.e amount paid in cash exceed Rs. 10,000) and then check whether the transaction is covered under Rule 6DD or not (i.e for temporary transfer case, no. of days are 15 days or more)?. In this case conditions of sections 40A(3) is satisfied but Rule 6DD is not Satisfied since No of Days are less than 15 days and therefore the amount of Rs. 15,000 is Not Allowed

Case 3:  Number of days employee continuously posted is 25 and payment made to employee is Rs. 8,000 in cash. Whether such expenditure is disallowed?

Sol:Check firstly whether Sec 40A(3) is attracted or not (i.e amount paid in cash exceed Rs. 10,000) and then check whether the transaction is covered under Rule 6DD or not (i.e for temporary transfer case, no. of days are 15 days or more)?. In this case conditions of sections 40A(3) is not attracted and therefore, there is no need to check the applicability of Rule 6DD. Hence the amount of Rs. 8,000 is Allowed.

Case 4:  Number of days employee continuously posted is 12 and payment made to employee is Rs. 5,000 in cash. Whether such expenditure is disallowed?

Sol: Check firstly whether Sec 40A(3) is attracted or not (i.e amount paid in cash exceed Rs. 10,000) and then check whether the transaction is covered under Rule 6DD or not (i.e for temporary transfer case, no. of days are 15 days or more)?. In this case conditions of sections 40A(3) is not attracted and therefore, there is no need to check the applicability of Rule 6DD. Hence the amount of Rs. 5,000 is Allowed.

(Republished With Amendments)

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Qualification: Student - CA/CS/CMA
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Location: PANIPAT, Haryana, IN
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