Measures to discourage cash transactions

The existing provision of sub-section (3) of Section 40A of the Act, provides that any expenditure in respect of which 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, shall not be allowed as a deduction. Further, sub-section (3A) of section 40A also provides for deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year of a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft.

In order to disincentivise cash transactions, it is proposed to amend the provision of section 40A of the Act to provide the following:

(i) To reduce the existing threshold of cash payment to a person from twenty thousand rupees to ten thousand rupees in a single day; i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of Income from “Profits and gains of business or profession“;

(ii) Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding ten thousand rupees to a person in a single day; and

(iii) Further expand the specified mode of payment under respective sub-section of section 40A from an account payee cheque drawn on a bank or account payee bank draft to by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account.

These amendments takes effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018- 19 and subsequent years.

[Clause 15]

Extract of relevant clause from Finance Bill, 2017

Amendment of section 40A.

15. In section 40A of the Income-tax Act,—

(a) in sub-section (2), in clause (a), in the proviso, after the words “Provided that”, the words, figures and letters “for an assessment year commencing on or before the 1st day of April, 2016” shall be inserted;

(b) with effect from the 1st day of April, 2018,—

(A) in sub-section (3), for the words “exceeds twenty thousand rupees”, the words “or use of electronic clearing system through a bank account, exceeds ten thousand rupees,” shall be substituted;

(B) in sub-section (3A),—

(i) after the words “account payee bank draft,”, the words “or use of electronic clearing system through a bank account” shall be inserted;

(ii) for the words “twenty thousand rupees”, the words “ten thousand rupees” shall be substituted;

(iii) in the first proviso, for the words “exceeds twenty thousand rupees”, the words “or use of electronic clearing system through a bank account, exceeds ten thousand rupees,” shall be substituted;

(iv) in the second proviso, for the words “twenty thousand rupees”, the words “ten thousand rupees” shall be substituted;

(C) in sub-section (4),—

(i) after the words “account payee bank draft”, the words “or use of electronic clearing system through a bank account” shall be inserted;

(ii) after the words “such cheque or draft”, the words “or electronic clearing system” shall be inserted.

More Under Income Tax

29 Comments

  1. ankit says:

    the expenses paid to labor by any manufacturing company if exceeds by 10000 in a day then such would be disallowed or not as they are paid on monthly basis or some time daily basis .

  2. prakash gupta says:

    sir, we govern a reputed hospital under institutional trust. We want to know, that can we make ‘refund’ for than 10000/- in cash ?

  3. Kiran Sukhija says:

    I had purchased Air Conditioner for Rs.32000 on 12-April-2018 and i had made payment of Rs.10000 on 12-April
    Rs.9000 on 15-April, Rs.9000 on 17-Apri
    l and balance 4000 on 21-April to the sipplier. WILL SEC 40A(3) apply in my case

    1. R.K.Cheruku says:

      Kiran Ji, Section 40A(3) applies for amounts incurred under Revenue Expenditure only but not for the capital expenditure. Expenditure debitable to Profit & Loss account comes under the purview of Sec.40A(3) of the Act. In your case, cost of AC will be capitalized and you can claim depreciation thereon. Hence you need not worry.

  4. Maguni says:

    Sir,
    we have cash paid for salary near 13 employees . Each Employee salary 12k to 25k. Please advise we can paid full salary to each employee.

  5. Sujith says:

    Sir have collected an amount of Rs 50000 for sale of goods and after billing an amount of Rs 15000 refunded via cash on 30/06/2017 is it comes under the said law?

  6. Gangaram says:

    Dear sir,
    Current limit of 10000/-for expenditure, if paid in solitary transaction to a person is allowable under profit and loss account, is effective w. E. F. April 1,2017 I. e. Relevant for A.Y.18-19.
    My question is the wages are paid more than 10000/-,to a person or more, would cover the outer limit for this question?

  7. CA Vinod Kumar Sand says:

    The amendment will effective from FY 2017-18 relevant to the assessment year 2018-19. In Income tax word previous year is considered rather than financial year hence the said provision of Rs. 10000/- cash payment will applicable for the previous year 2017-18 relevant to the Assessment year 2018-19. The said provision will be applicable from 01.04.2017.

  8. MOHIT K JAIN says:

    How is 40A(3) interpreted in case of barter transactions exceeding Rs 10,000 where transactions happen outside banking channels referred to in the section?

    1. Rounak says:

      By writing 1/4/2018, the writer meant AY 18-19. Income tax has nothing to do with FY hence the date is written in reference to AY.
      Ofcourse, it is applicable for previous year 17-18 so all the assesses will have to take in consideration from 1/4/2017.
      That is just my opinion. Please correct me if I’m wrong.
      Thank you.

  9. prasad says:

    Section 40(A) amendments are effective from 1st April 2018 or 1st April 2017. Please clarify because it is mentioned as effective date 1st Apr 2018 and AY 2018-19

Leave a Comment

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