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Cash payment to company employees

Divya Garg (Director) (178 Points)

25 September 2012

Hello All,

What happens if a director do a cash withdrawl within 20000 INR from company bank account and then from that cash amount pay cash to contractors of the company who are providing software development and data entry services to the company.

Are we allowed to pay within 20k amount as cash ? Do we need to give or take any document/receipt/memo to whom the payment was made ?

Since total payment to that contractor was within 70k annually, I assume we weren't supposed to deduct TDS there ?

In books of account, do we have to transfer that cash withdrawn first to cash in hand of the company ? and from that cash in hand we show a payment to contractor or we can show directly a journal entry of payment from bank account to the contractor ?

Please help here.

Thanks,

Divya

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3 Replies

krishna (Account & Tax Consultantes) (60 Points)
Replied 25 September 2012

Pls Refer Below Section.......

Section 40A(3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion.Person are splitting a particular high value payment to a person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day.Courts have also held that the statutory limit in section 40A(3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book.According to the judicial opinion, the words used are ‘in a sum’, i.e., single sum.Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction,the rigours of section 40A(3) will not apply

EXAMPLE :To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-,Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment.

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siva durga prasad (Internal Auditor ) (34 Points)
Replied 25 September 2012

hi,

this simple solve any differnce .

1. bsnl land line bill amt -35000

2. voda fone bill amt -25000

3. to payments are paid on single day on cash payment.

4. point 1. is exempeted

5. point 2.is above 20000 item to be considered.

6. govt of taxes to eligible.

7. suppose x company purchased furniture 35000 . morning to see an advance 15000 , next delivery time on same to paid 5000 evening to be paid on reaming amt 15000 three times paid on single day but party has same this example 20000 above item.