Section 40A(3) provides for restrictions on cash payments exceeding certain limits. Rule 6-DD was framed by the Central Board of Direct Taxes which provides for cases and circumstances in which payments exceeding Rs 10,000 or Rs 35,000 in case of payment to transport operators (for plying, hiring or leasing goods carriages) may be made otherwise than by a crossed cheque or a crossed bank draft. However, to provide some relaxation, Rule 6DD provides that under the following cases no disallowance u/s 40A(3) shall be made where any payment of sum exceeding 10,000 or 35,000 is made otherwise than by a crossed cheque or a crossed bank draft :
1. Where the payment is made for the purchase of:
(i) agricultural or forest product, or
(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming
(iii) fish or fish products, or produce or products; or
(iv) the products of horticulture, to the cultivator, grower or producer of such articles
2. where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;
3. where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, or profession or vocation, in any such village or town;
4. where any payment by way of gratuity, retrenchment compensation or similar terminal benefit, is made to an employee of the assessee or heirs of any such employee or in connection with the retrenchment, resignation, discharge or death of such employee, if the income chargeable under the head, "salary" of the employee in respect of the financial year in which such retirement, resignation, discharge or death took place or the immediately preceding financial year did not exceed 50,000;
5. In case payment is made by an assessee as salary to his employee who is temporarily posted for a continuous period of more than 15 days at a place other than normal place of business or on a ship and such employee does not maintain a bank account at such place or at ship and tax as required u/s 192 has been deducted at source;
6. In case payment is made on such day or date on which banks are closed due to strike or holiday,
7. Where payment is made to an agent who is required to make further payment in cash. (Notification no. 9917 dated 1-12-95).
8. Where the payment is made to RBI/SBI or any cooperative bank or land mortgage bank or any agricultural credit society or LIC of India.
9. Where the payment is made to government in legal tender, i.e., payment of taxes, custom duty etc.
10. Where the payment is made by an authorised dealer or a money changer against the purchase of foreign currency or traveller's cheques in the normal course of business.
CAclubindia
