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 disallowed

Only expenses were covered, not fixed assets

For transporter, limit was 35000


Now
Cash payment more than 10000 is disallowed

For 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 / Apiculture / 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

Proft 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  
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  
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

  1. Practical Income Tax
  2. Corporate Income Tax

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 9 years. He also provides Accounts Tax GST Training in Delhi and Pune.