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Cash payment in excess of Rs.20000/- ?

LAXMIKANT JAIPURKAR (Practicing Company Secretary/Tax Consultant) (403 Points)

19 February 2009

Is there is any change in the limit of cash payment in excess of Rs. 20,000/- at a time ? Can a amount in excess of Rs. 20,000/- can be paid in a day/at a time. Pl.clarify.

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14 Replies

Tharish V (Student) (988 Points)
Replied 19 February 2009

its actually the payment to a person in a single day should not exceed Rs. 20,000 by way of any mode other than an account payee cheque or an account payee bank draft...

Nikhil Kumar (CA , Qualified CPA) (910 Points)
Replied 19 February 2009

Is there any provision that we can pay electricity bills or similar expenses in excess of 20000 in cash??

CA Ankur Mittal (Assistant Manager @ Reliance Communication) (759 Points)
Replied 19 February 2009

you can make payment of above 20,000 to any govt dept..i still have doubt regarding Mr. Tharish choudhary answer i guess you cant pay more than 20,000 for single bill ... like when auditing for okaya power ltd.

there were two payments on single day one 24000 and other 4000 for another bill.. but we only disallowed payment of 24000.. as per my seniors guideline

anyone plz clarify my seond point whether 4000 will also be disallowed

CA. Ashok shah (CHARTERED ACCOUNTANT) (333 Points)
Replied 19 February 2009

Sec.40A (3) talks about “Where the assessee incurs any expenditure in respect of which……………………………..”. It means Sec40A (3) is applicable in respect of an “expenditure” which is in excess of Rs.20000/-. Expenditure is said to be incurred when a bill to that effect is accounted for. Hence when both the amount of bill and the amount of payment in respect thereof exceeds Rs.20000/-, provisions of Sec 40A(3) are applicable, otherwise not. Aggregate of payments made to a person in a day refers to payment of the same bill which exceeds Rs.20000/-. Because of the amendment, from Asstt Year 2009-10, you can not make the payment in cash more than one time in a day for the same bill if it exceeds Rs.20000/- in aggregate in a day.

Arpit Gupta (Chartered Accountant ) (95 Points)
Replied 25 February 2009

Originally posted by :LAXMIKANT JAIPURKAR

Is there is any change in the limit of cash payment in excess of Rs. 20,000/- at a time ? Can a amount in excess of Rs. 20,000/- can be paid in a day/at a time. Pl.clarify.

Don't get confused read further

Sec. 40A(3) of INCOME TAX ACT 1961 says any expenditure in excess of Rs. 20000 shall be disallowed if it is paid by any mode other than an A/c payee cheque or Bank draft.

However, Rule 6DD of Income Tax Rules provides the following EXCEPTIONS -

1. Amount payable to Government

2. Amount payable to Government Authorities and RBI

3. Any amount payable in a place where there is no BANK

4. Amount payable in case of purchase of Cpital Goods (CBDT Circular)

5. Amount payable in case of purchase of goods made under Cottage Industry

6. Amount payable to person involved in Hoticulture or Nursery

7. Amount payable to an employee from superannuation fund if his salary does not exceed fro 7000 p.a.

Further , if you pay an amount exceeding Rs.20000 in one day but in more than one time (say 15000 in one time and 12000 anothet time) then it is not covered under Sec. 40A(3)

Now from tax planning angel you can think of paying sigle bill in two times by saying to your seller (or other person to whom you have to pay) for making two bills for a single trasaction in the name of same person

There is one more way, where you can get made two bills for a single transaction exceeding Rs. 20000 in the name of two persons of your family

Madhavendra (CA Final Student) (99 Points)
Replied 25 February 2009

I would like to answer to ankur's query.Before the amendment made in Budget 2008 if say, a person wanted to pay Rs.36000 to Mr.X then he would Split the amount say 18000 & 18000 and make two payments (can be on the same day ) and escape from 40A(3).Now after the amendment the law states that :where the assessee incurs any expenditure in respect of which A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, otherweise than A/c payee cheque..bla bla bla...exceeds Rs.20000, no deduction shall be allowed in respect of such expenditure. So Ankur could disallow Rs.24000 only earlier but as of now he should disallow both 24000 & 4000 as these were made to a single person on a single day.Hope things are clear.I conclude by making one request to Mr.Ankur that please maintain client confidentiality.

2 Like

sachin patil (Accountant) (102 Points)
Replied 26 February 2009

if i made a payment of more than 20,000 for Mr.x in full year on various dates, it is applicable or not?

CA Sakshi (CA Practice) (309 Points)
Replied 26 February 2009

Originally posted by :sachin patil
"	if i made a payment of more than 20,000 for Mr.x in full year on various dates, it is applicable or not?	"

Mr. Sachin

The matter of question is whether at a single time cash exceeding Rs. 20000/- can be paid to a single person or not. In whole year you can make any number of payments but each cash payment (in a single day) should not exceed Rs. 20000/-. You for instance pay cash to Mr. X Rs. 20000/- on 24th Feb. then on next day pay again Rs. 20000/-, this section will not apply. Is this clear.

1 Like

Arpit Gupta (Chartered Accountant ) (95 Points)
Replied 28 February 2009

Originally posted by :sachin patil
"	if i made a payment of more than 20,000 for Mr.x in full year on various dates, it is applicable or not?	"

After Finance Act 2008, if you make any payment exceeding Rs. 20000 in a day it will be disallowed but before FA 08 tthis was a way of tax plannng which is checked by FA 08

Now if you have to make payment exceeding Rs. 20000 you have to pay it not in day but in two days either simply pay it in two days or make two invoice

Dishant Goel (Auditor) (22 Points)
Replied 09 September 2011

Can someone please clarify if the disallowance is on 20000 and more or 20001 and more.

Neha Agarwal (CA FINAL) (38 Points)
Replied 18 May 2012

Can Donation in excess of Rs.20000 be paid on single day?

KARANDEEP,CA,B.Com,CS FNL (JOB) (457 Points)
Replied 18 May 2012

one more thing is provide in the said section......thats is in case of payment to transporter limit is Rs.35000/-

Resham (Carpe Diem !!!) (6535 Points)
Replied 19 May 2012

The easiest interpretation of the said section tha can be made is that if you want the deduction of any said expense that you incurred, you must not:-

Pay an amount in excess of Rs. 20000 ( i.e. more than Rs. 20000)
otherwise than by way of Account payee cheque or draft drawn on a bank,
to any person in a day.

If you are out of purview of this sub-section, you are eligible for deduction.

Person here means as defined in section 2(31)

It includes any Local authority. hence payment made for electricity bill will be under this purview. It cannot be made in cash to remain eligible for deduction.

Resham (Carpe Diem !!!) (6535 Points)
Replied 19 May 2012

@ Mr. Dishant Goel:

The prvision states in excess of Rs. 20000/-. Hence cash payment till Rs. 20000 is allowed but shall be disallowed if it is for Rs. 20001/- or more.