LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Section 40 A (3)(a) and rule 6DD

BINAYAK (Management Consultant) (104 Points)

09 April 2011

HI,

DOES REIMBURSEMENT TO AN EMPLOYEE FOR IMPREST EXPENSES BY CASH EXCEEDING 20000 ALLOWED????

SINCE IN RELEVANT SECTION AND SUBSEQUENT RULE NO SUCH ALLOWANCE IS MENTIONED OR EXPLAINED.

HERE, IMPREST IS OF

A. SUCH NATURE WHERE AN EMPLOYEE COLLECTS MONEY FROM THE COMPANY AND DISTRIBUTES THE SAME TO OTHER WORKERS

AND

B. HE CLAIMS FOR REIMBURSEMENT TOWARDS PETTY EXPENSES INCURRED DURING A PERIOD OF TIME

PAYMENTS ON BOTH CASES EXCEED 20000 IN A DAY????

THANK YOU

Reply
Follow
Share

16 Replies

SIVASIVA (FCA, Future CA) (4935 Points)
Replied 09 April 2011

payment more than Rs.20000 to one person is only disallowed.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 09 April 2011

the person is petty cash holder for company, here company may fix a celing of max cash to be handled at one single time, no direct relation with incometax.

Joey Tribbiani (fdg) (2010 Points)
Replied 09 April 2011

Imprest given to an employee does not fall into category of expenses,its just the amount given to an employee to make payments for expenses. However if the employee expends more than20000 for an expenditure then it will be disallowed..

Chandresh Darji (Article Assistant) (24 Points)
Replied 11 April 2011

Reimbursement to employee for petty cash expenses is not expenses for company at all. So it will not be included inSec 40 A(3)(a) and rule 6DD.

Joydip Chaubey (CA-Final Student Former Article Assistant now Self Employed) (41 Points)
Replied 11 April 2011

A) Generally Amount paid by the company to the petty cashier for the petty cash expenditure for a given period.And such cash is utilised by the petty cashier for incurring different expenditure on different times during that period.the company does not book such petty cash payment exceeding 20000 to petty cashier as an expense.which can be booked by a company as follows:

1) Petty Cash A/c ..............Dr Rs. 21000/-

To, Cash A/c Rs. 21000/-

(On a single day)

2) Expenses A/c..................Dr. Rs. 7000/-

Expenses A/c .................Dr. Rs. 7000/-

Expenses A/c .................Dr Rs. 7000/-

To, Petty Cash A/c Rs. 21000/-

(on different dates)

In the above case it has clarified that the expenditure incurred to a single person are not erxceeding more than 20000 in a single day inspite of the petty cash payment to the cashier is exceeding 20000. but where the expenditure incurred by the petty cashier is exceeding 20000 to a single person in a single day then it will come under the purview of Sec. 40A (3).

B) In the case of reimbursment of petty cash exp. to the petty cashier can be explained as follows:

1) Expenses A/c..................Dr. Rs. 7000/-

Expenses A/c .................Dr. Rs. 7000/-

Expenses A/c .................Dr Rs. 7000/-

To, Petty Cashier A/c Rs. 21000/-

(On different dates)

2) Petty Cashier A/c ......................Dr. Rs. 21000/-

To Cash A/c Rs. 21000/-

or,

2) Petty Cash A/c ........................Dr. 21000/-

To Cash A/c 21000/- &

Petty Cashier A/c.....................Dr. 21000/-

To Petty Cash A/c 21000/-

In the above case also the exp. is not incurred in a single day to a single person. only the exp. is reimbursed on a single day as a whole.It will not attract sec 4 A (3).but if one particular exp. incurred is exceeding 20000 then it will attract sec 40 A (3).Hope I've clarified your querry Binayak.

CA Shiv (Business Controller) (2987 Points)
Replied 11 April 2011

Imprest system is the the part of cash balance for the company.

Treat it as advance for various expense. So if more than 20k is given for single exp than it will be disallowed. Or else it wont be disallowed.

Joydip Chaubey (CA-Final Student Former Article Assistant now Self Employed) (41 Points)
Replied 11 April 2011

Yes Shivang Sir,I was trying to establish that point in my previous messg, what u have mentioned.Thank u sir.

1 Like

G.senthil kumar (Audit Assistant) (23 Points)
Replied 11 April 2011

Payment made to an employee for distributing money to other workers will be treated as a cash advance (which is an asset) hence the same will not be disallowed u/s 40A(3).

Having said that , if the recipient employee makes payment to other workers or incurs expenditture in a single day exceeding Rs. 20,000 the same will be disallowed u/s 40 A(3).

G.Senthil -CA Final Student

CA Shiv (Business Controller) (2987 Points)
Replied 11 April 2011

Mr. Senthil Kumar.

What does the act say? 20k in a day or 20k for a single expense.....?

BINAYAK (Management Consultant) (104 Points)
Replied 12 April 2011

THANK YOU ALL FOR YOUR VALUABLE COMMENTS AND REPLIES. I HAD SEEKED EXPERT ADVISE ALSO FOR THE SAME QUERY, AND HE ALSO SUGEESTED THAT A SINGLE EXPENDITURE SHOULD NOT EXCEED 20K IN A DAY.

G.senthil kumar (Audit Assistant) (23 Points)
Replied 13 April 2011

Shivang sir, As per sec 40 A(3) where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee chq. or draft exceeds Rs. 20000 (for transporters the limit is Rs. 35,000) the same will be disallowed.

Hence we have to consider whether the payments made to a single person for any expenditure which is allowable under income tax act, 1961, exceeds Rs. 20000 in a single day (Subject to Rule 6DD) and we need not bother about the single EXP.

We have to bother about single person in a single day.

CA Shiv (Business Controller) (2987 Points)
Replied 13 April 2011

Mr. Kumar,

Very well explained. So in the above case the employee is been given a sum as an advance to make payments to the co-workers. so there are many person involved.

Treat it as an imprest balance given and so it wont be disallowed. It wil lbe like balance with cashier to make payments for any exp.

Pls let me know if i am wrong.

mark (hr) (21 Points)
Replied 13 April 2011

Interactive Platform for Finance Professionals and Taxpayers of India.Section 40A(3) provides that where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding Rs.20000.

________________

mark

[url=https://www.topsyssolutions.com ]Payroll India[/url]