Section 40A(3)
Cash Payments > 20000 10000
If any expenditure has been paid otherwise then through Account payee cheque
Payment 20000 in a single day
OR
Aggregate of all transaction in a day 20000 10000
Then the expense is not allowed as deduction
(1) In case payment is made to a goods transport operator (person in the business of plying /Hiring / leasing of goods carriages) then limit is 35000 per day
(2) This section is only applicable regarding expenses hence it is not applicable on transaction such as purchase of fixed assets or repayment of loan
From 1/4/2017
Any payment made in cash against acquisition of asset would be cover by Sec 43(1).
With this introduction, cash payment exceeding Rs 10000/- per day per person would not be allowed as a cost for the purpose of depreciation and neither it would be considered as a cost at the time of sale.
Earlier
Cash payment more than 20000 is disallowedOnly expenses were covered, not fixed assets
For transporter, limit was 35000
Now
Cash payment more than 10000 is disallowedFor transporter, limit is 35000
Only expenses were covered, not fixed assets
For fixed assets, dep will not be allowed
Exceptions
Following payments are allowed even if amount is more than 10000/350000 and amount not paid by account payee cheque. .
(1) Payment by debit card / credit card / online fund transfer /TT (Telegraphic transfer) / loan from bank / book adjustment by bank from one account to another.
(2) Payment to any bank / RBI /LIC / Agricultural Credit Society
(3) Payment made in legal tender given to government.
(4) Any adjustment made in books (Journal Entry passed in Books adjusting the amount)
(5) Payment for agricultural purpose (horticulture / Agriculture / Pisciculture / Animal Husbandry Covered here)
(6) Payment, in village of loan which does not have any bank, to a person who lives in such Village or has business in such village .
(7) Payment to cottage industry which is working without power (this can be in village or in city )
(8) During bank holiday or bank strikes payment can be made in cash
(9) Money changer can make payments in cash in exchange of for foreign currency .
(10) Payment to agent when agent has to make payment in cash on behalf of the person.
(11) Any salary paid to an employee who is
temporarily posted for 15 days or more in a place other normal place
and
does not maintain any account at such place
(if a employee is posted on a ship then also covered here)
(12) Any payment paid on retirement/retrenchment/resignation/death of employee if such payment does not exceed Rs.50000. Such amount may be paid to the employee or this heir (on death of employee etc) .
Q2
| Profit and Loss of Ajay & Co,a proprietorship for FY 2015-16 | |
| SALES | 750000 |
| Less | |
| EXPENSES | 600000 |
| PROFIT | 150000 |
Suppose Expenses Include
Cash payment made to following persons
| Party Name | Particulars | Amount |
| A LTD | Cash Paid for purchase of goods | 10000 |
| B LTD | Cash Paid for purchase of goods | 25000 |
| C LTD | Cash Paid for purchase of furniture | 30000 |
| D LTD | Cash Paid for Goods transport | 35000 |
| Total | 100000 |
Earlier
| Computation of PGBP Income | Amount |
| Profit as per P& L A/c | 150000 |
| Add | |
| Expense Disallowed | |
| Cash Payment for expenses greater than 20000 | 25000 |
| Less | |
| Expense Allowed | |
| PGBP INCOME | 175000 |
Now
| Computation of PGBP Income | Amount |
| Profit as per P& L A/c | 150000 |
| Add | |
| Expense Disallowed | |
| Cash Payment for expenses greater than 20000 | 25000 |
| Dep on Furniture @ 10% | 3000 |
| Less | |
| Expense Allowed | |
| PGBP INCOME | 178000 |
Note:- On goods transport,deduction not available
