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Payments exceeding 20,000

sai krishna (Student) (186 Points)

21 July 2008

hi friends

If an employer made a payment exceeding 20,000 and the payment which is made is in the nature of an Imprest whether there will be any exemption for these kind of expenses. pls clarify

Regards

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4 Replies

CA Hemant T Dewani (Chartered Accountant) (3356 Points)
Replied 21 July 2008

Amounts not deductible in respect of the expenditure exceeding Rs. 20,000/- Sec[40A(3)]

In case of the following conditions being satisfied then 100% expenditure related to this Section gets disallowed (as applicable from AY 2008-09, 20% of the expenditure was disallowed till AY 2007-08)

Condition	Descripttion
I	The assessee incurs any expenditure which is other wise deductible under other provisions of the Act for computing Business/ Profession.
II	A payment in respect of such expenditure, or part thereof exceeds Rs. 20,000/-
III	The payment mentioned in condition two is made in CASH or BEARER CHEQUE.

However, the above provision has certain specific exceptions defined in Rule 6DD. which is summarized as follows, in which case the expenditure stands fully deductible:

Where the payment is made to banking and other credit institutions, such as RBI, Public & Private sector commercial banks, Co-operative banks or land mortgage banks, LIC, Agricultural societies, IFCI, IDBI and State Financial corporations.
Where the payment is made to Government and, under the rules framed by it, such payment is required to be made in legal tender;
Where payment is to be made under any contract entered into by the assessee before the 1st day of April, 1969 and such payment is required to be made in legal tender;
Payment through Banking system, e.g, Letters of credit, mail or telegraphic transfer, book adjustments in the on bank & another, and bills of exchange including Hundies made payable to a bank.
Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee ;
Where the payment is made for the purchase of agricultural/ forest produce/ production of animal husbandry/ dairy or poultry farming, fish/ fish products/ products of horticulture or apiculture.
Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;
Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;
Where any payment by way of gratuity, retrenchment compensation or similar terminal benefit, is made to an employee of the assessee or the heirs of any such employee on or in connection with the retrenchment, resignation, discharge or death of such employee, if the income chargeable under the head Salaries of the employee in respect of the financial year in which such retirement, resignation, discharge or death took place or the immediately preceding financial year did not exceed Rs. 7,500;
Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Income-tax Act, 1961, and when such employee;
Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike;
Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person;
Where the payment is made by an authorized dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business.

PLEASE NOTE:

If an assessee makes payment at different times during the day & he has no idea, that he has to pay to the same person on more than one occasion, he cannot be subject to the statutory provision of Sec. 40A(3).
If an assessee makes a payment of two different bills (none of them exceeds Rs. 20,000/-at the same time on cash / bearer cheque, this section is inapplicable even if the aggregate payment exceeds Rs. 20,000/-
Where the assessee makes payment over Rs. 20,000/- at a time, partly by crossed cheque and partly on cash Section 40A(3) disallowance is not attracted.
Provision of Section 40A(3) is not applicable in respect of an expenditure not deductible u/s 30 to 37.

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(Guest)

Originally posted by :CA Hemant T Dewani
"	Amounts not deductible in respect of the expenditure exceeding Rs. 20,000/- Sec[40A(3)] In case of the following conditions being satisfied then 100% expenditure related to this Section gets disallowed (as applicable from AY 2008-09, 20% of the expenditure was disallowed till AY 2007-08) Condition Descriptttion I The assessee incurs any expenditure which is other wise deductible under other provisions of the Act for computing Business/ Profession. II A payment in respect of such expenditure, or part thereof exceeds Rs. 20,000/- III The payment mentioned in condition two is made in CASH or BEARER CHEQUE. However, the above provision has certain specific exceptions defined in Rule 6DD. which is summarized as follows, in which case the expenditure stands fully deductible: Where the payment is made to banking and other credit institutions, such as RBI, Public & Private sector commercial banks, Co-operative banks or land mortgage banks, LIC, Agricultural societies, IFCI, IDBI and State Financial corporations. Where the payment is made to Government and, under the rules framed by it, such payment is required to be made in legal tender; Where payment is to be made under any contract entered into by the assessee before the 1st day of April, 1969 and such payment is required to be made in legal tender; Payment through Banking system, e.g, Letters of credit, mail or telegraphic transfer, book adjustments in the on bank & another, and bills of exchange including Hundies made payable to a bank. Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee ; Where the payment is made for the purchase of agricultural/ forest produce/ production of animal husbandry/ dairy or poultry farming, fish/ fish products/ products of horticulture or apiculture. Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; Where any payment by way of gratuity, retrenchment compensation or similar terminal benefit, is made to an employee of the assessee or the heirs of any such employee on or in connection with the retrenchment, resignation, discharge or death of such employee, if the income chargeable under the head Salaries of the employee in respect of the financial year in which such retirement, resignation, discharge or death took place or the immediately preceding financial year did not exceed Rs. 7,500; Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Income-tax Act, 1961, and when such employee; Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike; Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; Where the payment is made by an authorized dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business. PLEASE NOTE: If an assessee makes payment at different times during the day & he has no idea, that he has to pay to the same person on more than one occasion, he cannot be subject to the statutory provision of Sec. 40A(3). If an assessee makes a payment of two different bills (none of them exceeds Rs. 20,000/-at the same time on cash / bearer cheque, this section is inapplicable even if the aggregate payment exceeds Rs. 20,000/- Where the assessee makes payment over Rs. 20,000/- at a time, partly by crossed cheque and partly on cash Section 40A(3) disallowance is not attracted. Provision of Section 40A(3) is not applicable in respect of an expenditure not deductible u/s 30 to 37.	"

Paras (Job) (90 Points)
Replied 10 December 2008

Originally posted by :CA Hemant T Dewani
"	Amounts not deductible in respect of the expenditure exceeding Rs. 20,000/- Sec[40A(3)] In case of the following conditions being satisfied then 100% expenditure related to this Section gets disallowed (as applicable from AY 2008-09, 20% of the expenditure was disallowed till AY 2007-08) Condition Descriptttion I The assessee incurs any expenditure which is other wise deductible under other provisions of the Act for computing Business/ Profession. II A payment in respect of such expenditure, or part thereof exceeds Rs. 20,000/- III The payment mentioned in condition two is made in CASH or BEARER CHEQUE. However, the above provision has certain specific exceptions defined in Rule 6DD. which is summarized as follows, in which case the expenditure stands fully deductible: Where the payment is made to banking and other credit institutions, such as RBI, Public & Private sector commercial banks, Co-operative banks or land mortgage banks, LIC, Agricultural societies, IFCI, IDBI and State Financial corporations. Where the payment is made to Government and, under the rules framed by it, such payment is required to be made in legal tender; Where payment is to be made under any contract entered into by the assessee before the 1st day of April, 1969 and such payment is required to be made in legal tender; Payment through Banking system, e.g, Letters of credit, mail or telegraphic transfer, book adjustments in the on bank & another, and bills of exchange including Hundies made payable to a bank. Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee ; Where the payment is made for the purchase of agricultural/ forest produce/ production of animal husbandry/ dairy or poultry farming, fish/ fish products/ products of horticulture or apiculture. Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products; Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town; Where any payment by way of gratuity, retrenchment compensation or similar terminal benefit, is made to an employee of the assessee or the heirs of any such employee on or in connection with the retrenchment, resignation, discharge or death of such employee, if the income chargeable under the head Salaries of the employee in respect of the financial year in which such retirement, resignation, discharge or death took place or the immediately preceding financial year did not exceed Rs. 7,500; Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Income-tax Act, 1961, and when such employee; Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike; Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; Where the payment is made by an authorized dealer or a money changer against purchase of foreign currency or travelers cheques in the normal course of his business. PLEASE NOTE: If an assessee makes payment at different times during the day & he has no idea, that he has to pay to the same person on more than one occasion, he cannot be subject to the statutory provision of Sec. 40A(3). If an assessee makes a payment of two different bills (none of them exceeds Rs. 20,000/-at the same time on cash / bearer cheque, this section is inapplicable even if the aggregate payment exceeds Rs. 20,000/- Where the assessee makes payment over Rs. 20,000/- at a time, partly by crossed cheque and partly on cash Section 40A(3) disallowance is not attracted. Provision of Section 40A(3) is not applicable in respect of an expenditure not deductible u/s 30 to 37.	"