Payment U/S 40A(3) [ Rule 6DD(k) ]

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Guest

Guest (Querist)

24 July 2008 As per the rule 6DD(k) payment made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person is not covered U/S 40A(3).

My question is the if the aforesaid agent makes cash payment above Rs. 20000, then weather such expenditure is allowed or not?

Thanks

Kunal Agrawal
kunalagrawal@aol.in
+91-99295-03735

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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25 July 2008 Allowed to whom? Agent? If the payment is within the scope of Rule 6DD, yes.

Guest

Guest (Querist)

25 July 2008 No my question is that if agent makes payment on behalf of priciple more then 20000 in cash then weather such amount will be allowed as deduction to the principle while computing his income U/S 28.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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09 August 2024 Under the Income Tax Act, 1961, Section 40A(3) addresses the issue of payments made in cash and their deductibility. Here’s how it works in the context of payments made by an agent on behalf of a principal:

### **Section 40A(3) of the Income Tax Act**

**Key Provisions:**

1. **General Rule (Section 40A(3)):**
- Payments exceeding ₹20,000 (or the specified threshold limit) in cash are not allowed as deductions for the taxpayer under Section 40A(3). This rule applies to payments made to a person, including an agent, in cash.

2. **Exception (Rule 6DD(k)):**
- Rule 6DD(k) provides an exception to this general rule. It states that payments made by any person to an agent who is required to make payments in cash for goods or services on behalf of such person are not covered under the restriction of Section 40A(3).

### **Specific Case: Payment by Agent**

- **Payment by Agent on Behalf of Principal:**
If an agent makes a payment exceeding ₹20,000 in cash on behalf of the principal, the principal can still claim a deduction for that payment under Section 28, provided that the payment is made as per Rule 6DD(k).

- **Conditions to Fulfill:**
- The agent must be making the payment in cash on behalf of the principal.
- The agent must be required to make such payments in cash as per their contractual arrangement or operational requirement.

### **Procedure and Compliance:**

1. **Documentation:**
- Ensure that the transaction is well-documented with proper records showing that the payment was made by the agent on behalf of the principal. Documentation should include invoices, receipts, and any correspondence related to the payment.

2. **Record Keeping:**
- Maintain records of the cash payment and any communication with the agent regarding the cash payment. The principal should also retain proof of payment made by the agent, including any receipts or acknowledgment from the agent.

3. **Verification:**
- Verify that the payment meets the conditions specified under Rule 6DD(k) to ensure that the deduction is allowable.

4. **Reporting:**
- Report the payment in the financial statements and tax return of the principal, ensuring all relevant details are accurately captured.

### **Conclusion:**

If the agent makes a payment in cash exceeding ₹20,000 on behalf of the principal, the principal can claim a deduction for this payment under Section 28, provided the payment adheres to the conditions outlined in Rule 6DD(k). The principal must ensure that all necessary documentation and compliance requirements are met to substantiate the deduction claim.