08 September 2013
As per Income Tax Act, Section 40A(3) we cannot make a cash payment to a person exceeding 20,000 Rs. for an expense. If for two different expenses on the same day cash payment is made to the same party for two different expense heads each of them not exceeding 20,000 but total exceeding 20,000. Will it be disallowed?
08 September 2013
where the payment made to a same party for 2 different bills by cash not exceeding Rs.20000 for each bill, then sec.40A(3) not applicable. section apply only the payment exceeding Rs.20000 in single day to same person for single bill
08 September 2013
Section 40A(3) of Income Tax Act 1961 provides for disallowance of expenses 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 bank or account payee bank draft, exceeds Rs 20000.
· Section 40A(3A) further provides for the payment in excess of Rs 20000 in a day made otherwise than account payee cheque or account payee bank draft, for an allowance made in the assessment for any year on the basis of incurred liability, to be treated as income of the year in which such payment is made.
· Aggregate Payment has to be seen: After the amendment w.e.f 2009-10 if a person makes more than one different purchases for cash from same person in excess of Rs 20000 in a single day even though on separate cash memos, such aggregate payment will be disallowed u/s 40A(3)
· Payment made for Plying, Hiring or Leasing goods carriages: In the case of payment made for plying, hiring or leasing of goods carriages the limit for disallowance under this section is Rs.35,000 instead of Rs. 20,000.
08 September 2013
If an assessee makes payment of two different bills (none of them exceeds Rs. 20,000) at the same time in cash or by bearer cheque, section 40A(3) is not applicable even if the aggregate payment is more than Rs. 20,000. This is because of the fact that section 40A(3) is applicable only in respect of an “expenditure” which is excess of Rs. 20,000. In other words unless the amount of the bill and the amount payment exceed Rs. 20,000, section 40A(3) is not applicable.
09 September 2013
Let me share the whole incident which created this problem in my head. ABC proprietor of his firm Owns a car and a truck. On 1-1-2013 he purchased tyres for car worth 19,500 and entered in books as Car Expenses. On the same date he purchased Truck tyres for 19,800 and entered as Truck Expenses. The purchase of tyres was made from the same party. Both the payments of 19,500 and 19,800 were made in cash and not by a/c payee cheque. Will the expenses be allowed or disaalowed under second 40A(3)..??
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