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sec 40A(3)

V.D.KRISHNA PRASAD (Private Employee) (183 Points)

24 July 2010

whether cash payment exceeding 20000 as advance attracts Sec 40A(3) ,plz provide basis for your comments

Thanks in advance

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9 Replies

DT Fundas - Tarun rustagi ( Author) (1150 Points)
Replied 24 July 2010

dear friend

if the payment(including advances,expenses) to one person exceeds rs.20000 in cash in one day sec.40A(3) is applicable.

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Nomula Sreenivasarao (DGM -Accounts) (163 Points)
Replied 24 July 2010

Yes

Cash Payment should not exceed Rs.20000/-, per day per person. You can pay through bank only..

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 24 July 2010

Dear Krishna,

Any payment exceeding rs.20000 made to one person in one day shall be disallowed u/s 40A(3) of the IT act provided payment made is for incurring expenditure which is otherwise deductible under tthe other prov. of the act for computing income from business or profession.

Thus advance above 20000 should be disallowed u/s 40A(3) provided such advance is given for meeting business expenses exceeding Rs.20,000 (may spend either at one go or in piecemil).

If the advance given as loan given to employees such as festival advance, temporary advance, etc. which is refundable back to person, then it would not attract sec 40A(3).

Further, Even if advance exceeding 20000 given, it would not be disallowed u/s 40A(3) if the expenditures for which it is given doesn't exceed 20000.

Regards,

MANOJ

Dharmendra Jha (Asst. Manager Finance) (100 Points)
Replied 24 July 2010

Yes

Cash Payment should not exceed Rs.20000/-, per day per person. You can pay through demand draft or cheque or any other mode of payment.

Thanks & Regards,

Dharmendra

Vishal Khanvilkar (Student) (202 Points)
Replied 24 July 2010

Please help guys

One of my client has

Short Term Gain 254624

Income other than short term gain 167085

80 C deductions 57625.

No adv tax no tds.

How do i calculate int u/s 234C.

Please help thanx in advance

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Abhimanyu Bind (CA Final Student & Audit Assitant) (2051 Points)
Replied 24 July 2010

Yes, agree with the answers given by the friends. However, I want to add one more point here. The limit of Rs. 20,000.00 has been raised to Rs. 35000.00 w.e.f 1st October, 2009 in case of payment made to transport operators for plying, hiring or leasing goods carriages. Therefore, payment or aggregate of payments up to Rs. 35,000.00 in day can be made to a transport operator otherwise than by way of account payee cheque or account payee bank draft. In all other cases , the limit would continue to be Rs. 20000.

venu gopal (in the way) (34 Points)
Replied 25 July 2010

hello every one,

cash payments Rs.20000 is disallowed. In case capital asset whether this rule apply ?. In paduka said that "this rule is not applicable for purchase of capital asset not meant for resale or repayment of loan". in singhania said that section 40A(3) is applicable even if an assesee puchases a depreciable asset. For instance, if x purchases a car for business purposes and payment (4.5lakh) is made cash,depreciation will be disallowed by virtue of section 40A(3).

My question is a company purcheses bike for business in its name by cash. i said that 40A(3) not apply after reffering paduka. company purchases by cash .

incase not eligible for depreciation, what remedy to take?

thanku in advance

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 25 July 2010

Dear Venu Gopal,

Sec. 40A(3) clearly specifyies that any expenditure paid in cash which is otherwise available for deduction under section 30 to 37 and if such expenditure exceeds Rs.20000 shall be disallowed fully.

The thrust of this provision is equally applies to Capital Asset which is also an expenditure charged to the P&L over the useful life of capital asset in form of Depreciation. Thus, even though payment exceeding Rs.20,000 made in cash for purchase of capital asset, depreciation should get disallowed.

Sanaa...Tulip... (student) (186 Points)
Replied 08 August 2010

And what if there z payment of unsecured loan exceeding Rs.20000 in cash ,will interest provided on such loan be disallowed............???????

And what about LIC premium paid above Rs.20000 in cash...........& investment in PPF above Rs.20000 in cash...........will deduction u/s 80C not be allowed.............??????

Thanx in advance............