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Payment of cash more than rs.20000 in a day

CA Darshan Soni (D.P.BARBHAYA & ASSOCIATES) (150 Points)

07 January 2017

40 (A) (3) PAYMENT OF CASH MORE THAN RS 20000 WILL BE DISALLOWED . IS THIS SECTION ALSO APPLIED TO NON AUDITED INDIVIDUAL ?

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (172434 Points)
Replied 07 January 2017

Any assesee (as defined u/s. 2(7) of IT act) having income from Business or Profession (whether liable to audit or not.)

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CA Darshan Soni (D.P.BARBHAYA & ASSOCIATES) (150 Points)
Replied 07 January 2017

SUPPOUSE I AM A TRADER OF ORNAMENTS . I AM PURCHASING GOODS WORTH RS.300000 FROM A REGISTER DEALER . AND MAKE PAYMENT TO HIM IN CASH OF RS.19000 IN DIFFRENT DAYS AND SQUARE OF BILL OF RS.300000 . IS THIS ALSO WOULD BE DISALLOWED ?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (172434 Points)
Replied 07 January 2017

It will not be disallowed, provided you have paid TCS @ 1 % over total bill amount u/s. 206C.

CA Darshan Soni (D.P.BARBHAYA & ASSOCIATES) (150 Points)
Replied 07 January 2017

TCS IS APPLICABEL WHEN PAYMENT IN CASH GOES BEYOND 500000 RS . IS PURCHASING OF SILVER AND GOLD ORNAMENTS OF RS.300000 IN CASH 1 % TCS WOULD BE APPLIED ?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (172434 Points)
Replied 07 January 2017

Scope of word expenditure u/s 40A (3)

The word expenditure covers all categories of expenditure involving payments for goods or services, which is deductible in computing the taxable income. It covers the payments made for goods purchased on credit, purchasing stock-in-trade.

It can be allowed.

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (172434 Points)
Replied 07 January 2017

Circumstance under which section 40A(3) is not-applicable

When income is estimated on presumptive rate, no disallowance can be made - When the income of the assessee was computed by applying a particular gross profit rate u/s 44AD, when no deduction was allowed in regard to the purchases of the assessee, there would be no need to look into the provisions of section 40A(3) and rule 6DD(j) - CIT v. Banwari Lal Banshidhar [1998] 229 ITR 229 (All.).

CA Darshan Soni (D.P.BARBHAYA & ASSOCIATES) (150 Points)
Replied 07 January 2017

THANKS SIR . BUT SIR I WANT TO KNOW IN MY CASE . ASSESSE IS TRADER OF SILVER AND GOLD ORNAMENTS , HE IS PURCHASING GOODS FROM REGISTER DEALER WORTH RS.300000 IN A BILL . AND PAYMENT HAS BEEN MADE IS IF RS.19000 EACH IN 15 INSTALLMENTS . SO WILL IT BE DISALLOWED IN ANY SECTION OF INCOME TAX WHETHER IN 40(A)(3) OR 206C ? . TCS IS ALSO NOT DEDUCTED BY SELLER PARTY AS BILL IS OF RS.300000 . BECAUSE 500000 IS LIMIT FOR TCS . AM I CORRECT SIR ?

Akash Dhatrak (CA final Student) (16 Points)
Replied 08 January 2017

Hi Darshan,

Response to your queries as follows:

1. 19,000 in 15 installments is allowed.

Reason : The section 40A(3) has wording as follows

"No deduction is allowed in respect of which a payment or aggregate of payments exceeding rupees twenty thousand are made to a person in a day otherwise than by an account payee cheque drawn on a bank or account payee bank draft."

Now here two point is highlighted in section above. Which clearly means more than 20000 should not be paid to one person in a single day . Thus, your action of Paying 19000 in 15 installements is valid. (Provided supported by cash receipt is made and revenue stamp is attached).

2. New section has been inserted by Finance act,2016. TDS is also imposed on Cash sale of goods and services (other than bullion and gold )- Refer section 206C(1D). which is as follows:

Every person, being a seller, who receives any amount in cash as consideration for sale of bullion or jewellery or any other goods (other than bullion or jewellery) or providing any service shall,at the time of receipt of such amount in cash, collect from the buyer, a sum equal to one per cent of sale consideration as income-tax, if such consideration,—

(i) for bullion, exceeds two hundred thousand rupees; or

(ii) for jewellery, exceeds five hundred thousand rupees or

(iii) for any goods, other than those referred to in clauses (i) and (ii), or any service, exceeds two hundred thousand rupees

Provided that no tax shall be collected at source under this sub-section on any amount on which tax has been deducted by the payer under Chapter XVII-B

These section is applicable to "Seller ". AND seller meaning is explained in 206C(c) which is as follows:

(c) “seller” means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-section (1) or sub-section (1D) are sold or services referred to in sub-section (1D) are provided.

So from above explanation of seller it is clear that ; inorder ro dedcut TCS @ 1% on sale of Good and services exceeding Rs.2,00,000.; your turnover in preceeding Financial year should be over Rs.1,00,00,000 (i.e u should be under audit).

Thus Conclusion is that : You can pay 19,000 in 15 installments without any TCS.

Hope above explanation has resolved your query

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