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Freight Payment in Cash exceeding limit of Rs. 20,000

S. Kumar (Business) (56 Points)

07 June 2008

Members are requested to provide their suggestions and tax implications in the following situation:-

1. Freight payment exceeds Rs. 20,000/- and is to be paid in full in cash to the Truck Driver on receipt of material;

2. Truck Driver does not have either PAN number or Bank Account;

3. Unless full freight is paid, the delivery of consignment will not happen;

4. The Truck driver is owner of the truck and does not have any permanent office. He keeps moving from city to city transporting the goods from one location to other according to customers requirements. He collects his freight in Cash only to buy diesel and meet unforseen enroute expenses;

5. How to enforce the TDS and payment through Cheque/Draft/Pay order in the above case?

Cheers,

Kumars

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16 Replies

surinder singh Bedi (Chartered Accountant) (41 Points)
Replied 07 June 2008

Dear Sir,

In this case there two options

Apply the P.A.N. of the said truck driver.
Make him payment in two names of firms

1 Like

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anshul chalotra (student) (20 Points)
Replied 07 June 2008

Freight paid in cash exceeding Rs.20000 to a person who don't have an a/c is not an exception u/s 194C and hence even that should be entertained u/s 194C

anshul chalotra (student) (20 Points)
Replied 07 June 2008

Freight paid in cash exceeding Rs.20000 to a person who don't have an a/c is not an exception u/s 194C and hence even that should be entertained u/s 194C

Prathamesh PARASHAR (Chartered Accountant) (64 Points)
Replied 07 June 2008

Dear sir,

we could think on the following lines:

1) the truck driver does not have any establishment for carrying on business or any bank account to put his saving into. whether his profit after meeting all his expenses will exceed themaximum income not taxable?It is quite unlikely, in which case,TDS need not be done.

2) To be on a safer side, TDS can be deducted after pursuading him to obtain PAN. It is likely that he must have ignored obtaining PAN earlier. But, with the changing Face of Tax administrative procedurs, he should be educated about obtaining PAN.

3) what will be the implication of Sec 40 A (3) on the above expenditure?

Taroon Sharda (Job) (125 Points)
Replied 07 June 2008

TDS has to be deducted, check the transporter name mentioned on the builty, you are making the payment to a person whose name is mentioned on the freight invoice/builty, driver is just a collecting the money on his behalf, so tds has to be deducted.

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S. Kumar (Business) (56 Points)
Replied 07 June 2008

I am looking for a very practical suggestion. Above views are of general nature.

Manish Soni (CA , CS) (828 Points)
Replied 09 June 2008

pass entries for Rs 20000 on various days because as per Finance Act 2008 any cash payment revenue in nature if exceeds Rs 20000 to any party during a day(even at different timings) will be disallowed.So better to pass entries on different days with Rs 20000.Recently our client faced the same problem.

Mahesh Paryani (Chartered Accountant) (365 Points)
Replied 10 June 2008

you will have to diduct TDS as per 194 C (if it falls under that catagery)still you can file the return as return is accepted up to 85 % of pan and you have made payments above 20000 that would be dis allowed

guru santhanam (Chartered Accountant) (97 Points)
Replied 10 June 2008

Hi Kumar,

I dont think that truck driver, being a owner of the vehicle, will be able to file return or calculate his income....

Let us think at our side for any solution:-

Making payment through cash will create problems later...... Cash is paid for Single consignment which is above Rs.20,000/-

No. of consignments for that Truck Driver can be maintained separately (in Excel Sheet). Cash can be paid in such a way that it is less than Rs.20,000/- per day. At the end of each month or so, we can reconcile the no. of payments made (less than Rs.20,000/-) and no. of consignments made by the Truck Driver.

From the Income Tax point of view, Freight is paid on that day itself for a consignment. But for us, it is maintained in excel sheet.

Remember, this is not accrual method. This is just to keep payment less than Rs.20,000/-. It should also noted that amount paid (which is less than Rs.20,000/-) should be reasonable from the business point of view. If the frieght payment is 25,000/- (market rate)...then Cash Payment can be made for less than Rs.20,000/-. But if the freight (as per the nature of transaction, goods & travel) every time is around Rs.50,000/-, then paying an amount less than 20K would be awkward.

At his Side, if possible we can convince him:-

Hope this helps u

Regards,

gurusanthanam

guru santhanam (Chartered Accountant) (97 Points)
Replied 10 June 2008

At his Side, if possible we can convince him:-

1. Bank Account is very important as it records our income and cash flow. Loans are disbured based on the strengths of Bank Account.

Hope it is helpful

Regards,

gurusanthanam

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guru santhanam (Chartered Accountant) (97 Points)
Replied 10 June 2008

Sorry, there is some HTML problem hence msgs are splitted up...

2. Since he is doing self business, filing of returns would be very vital incase he looks for any personal or home loans.

3. PAN would be required everywhere hereafter (buying property, etc..)

4. Being in self business and not having bank account or PAN is equal to being in nothing. No way he can prove his income to the outside world.

5. By calculating his yearly income (from ur organisation and others) you can educate him that there will not be much of tax liability.

Regards,

gurusanthanam

S. Kumar (Business) (56 Points)
Replied 11 June 2008

Thank you for the suggestions and views.

The time limit to settle the transporter his freight payment is only 2-3 hours from the time he reports for delivery till the unloading is complete.

During that time the transporter/driver of the truck lines up for return load. Immediately after unloading he has to rush for loading the material fo next destination.

How is it possible to brief him on the Tax Rules and Regulations? He is concerned with his freight payment.

The above are the facts and in such circumstances how to deal with the situation?

Tushar Papalkar (Manager-Accounts) (87 Points)
Replied 18 June 2008

Following steps may help you to solve this practical problem....

1. As the Driver don't have PAN, TDS certificate is of no use for him claiming Refund or deduction

2. Either Convince any familiar Transporter for such transactions for providing LRs Documens or Make understand driver and convince him to use name of any Transporter he is familiar with.

3. Deduct TDS on freight, Posting in accounts should be made in the name of LR holder,Issue TDS certificate in the concern Firm name.

4.Pay cash less than 20,000/- to Driver ( If more than 20,000/- then splits it to different dates)

vvngupta (12 Points)
Replied 26 June 2008

dear mr. kumar,

ref: 134 CTR 132, 219 ITR 486.

in the case of Calcutta Goods Transport Asso. V/s. Union of India, Hon'ble High court of Calcutta has verdicted that

mere transportation of goods by a common carrier does not affect the goods carried nor are the goods affected thereby and as such cannot be brought within the scope of section 194C of IT Act.

common carriers of goods by road are not liable to deduction of tax at source under section 194C of the IT Act, 1961 and the provisions of the section are not applicable to them.

hope the above will give you some clarity.