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CASH SLALARY

Maria (Business) (54 Points)

06 September 2009

Please tell me IT rules for the following :

What is the limit on maximum amount that can be paid as Salary in cash to its employees by a proprietorship concern during FY : 2008-2009???

and also is there any limit on number of employee for a Prop. concern with a turnover of almost a crore.

Thanks

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8 Replies

pankaj (International Tax consultant) (66 Points)
Replied 06 September 2009

first of all there is no restriction on proprietory firm for recruiting specific number of employees.Now let me give your 1st question answer. As per sec 40A(3) of Income tax Act,1961 any single expenditure including salary for which payment is made in excess of Rs 20000 in cash in a single day will be disallowed subject to exception specified in rule 6DD which is as follow relating to salary:If the payment is made by employer to employee in case where employee is on ship or in a place where there is no banking facility available then in such case this section doesn't apply

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MR. R....halpfull hand is back (.) (297 Points)
Replied 06 September 2009

Originally posted by :Maria
"	Please tell me IT rules for the following : What is the limit on maximum amount that can be paid as Salary in cash to its employees by a proprietorship concern during FY : 2008-2009??? and also is there any limit on number of employee for a Prop. concern with a turnover of almost a crore. Thanks	"

sec 40A(3)and rule 6DD is aplicable in this case

salary is a revanue exp. so if salary is pay morethen 20000 is dis -allowed. within this limit you can pay salary in cash..

Maria (Business) (54 Points)
Replied 06 September 2009

Thanks Pankaj and Mr. R

As per ur clarification... its max 20k per day.

ie 20k X 360 = 720000 per year. Sum how it sounds unrealistic.

Just to clear my question.... I would like to add.. that I pay slalary in cash to all my 10 employee of 5 k pm... what is the maximum i can show their salary in books so as to increase my salary exp to max but without incurring any Tax issues coz i have not deducted/deposited TDS on their salary.

Hope its much clearer now :)

MR. R....halpfull hand is back (.) (297 Points)
Replied 06 September 2009

dear u r right

but you pay whole salary to your emp. in one day so u pay 20000 or less.

if u show in your emp. salary as advance in your salary ragister then you pay

20k * 365 =7300000

AND

as per IT ruls if you pay salary above the limit declare by F.M then u have to deduct T.D.S

Maria (Business) (54 Points)
Replied 06 September 2009

Thanks for the prompt feedback.

As i understood from what u said is that, since i pay 5 k to 10 employee...

if i pay all on one day of a month eg: 01st of every month then I exceed the 20k limit, since i have to pay 50k cash ... Right???? so I need to either show salary advance or pay employees on diffrent days so to keep my salary exp under 20k on a single day. I hope I'm on the still on the right track :) And ur calculation of 20k * 365 =720000 shud be actually 73,00,000.00 . OR is there some other logic to it???

Also as regards the max limit.... I can pay salary of max 12,500.00 per employee as the current Nil slab is of max 1,50,000.00 pa.