LIVE GST Certification Course by CA Arun Chhajer begins 21st April. Register Now!!

Advance cash paid excess of 20000

Manivannan (Student) (62 Points)

05 February 2017

Hi. I have a doubt regarding Cash payments exceeding rs 20000.

Advance cash paid for meeting out expenses - Rs.40000

Actual expenditure amounts to Rs.33000. Whether this expenditure is disallowed or any bill more than Rs.20000 incurred in a day wrt to such expense is disallowed?

Also, there are chances of splitting the same expense in different days inorder to avoid this section?

Reply
Follow
Share

1 Replies

JIBIN THOMAS BABU (CA FINAL STUDENT) (147 Points)
Replied 10 February 2017

CASH PAYMENT EXCEEDING Rs. 20,000 Sec 40A(3) of Income tax Act, 1961

Section 40A(3)(a) of the Income-tax Act, 1961 provides the at any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000/- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. (if payment is being made for plying, hiring or leasing goods carriages then Limit for these section is Rs. 35000/-,instead Of 20,000/- )

Section 40A (3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion. Aggregate Payment has to be seen: After the amendment w.e.f 2009-10 if a person makes more than one different purchases for cash from same person in excess of Rs 20,000 in a single day even though on separate cash memos, such aggregate payment will be disallowed u/s 40A(3) Eg: (i) Assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-, Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment

Read more at: /forum/details.asp?mod_id=292490&offset=0