Is materials purchased in cash 50,00,000/- acceptable or not

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Venkateshwarlu Pulluri (Querist)
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02 March 2025 is materials purchased in cash 50,00,000/- acceptable or not incurred, in one case consumable purchases are more than 50 lakhs towards consumable purchased shown in profit and loss account

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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12 August 2025 1. Is purchasing materials worth ₹50,00,000 in cash acceptable?
Legally, large cash purchases are generally discouraged and can raise red flags.

Under the Income Tax Act and GST laws, cash transactions above ₹2 lakh are restricted or require special disclosures.

For purchases exceeding ₹2 lakh, payment should preferably be made through banking channels (cheque, electronic transfer) to ensure transparency and avoid compliance issues.

Cash purchases of ₹50 lakhs are highly unusual and may invite scrutiny from tax authorities.

2. Regarding consumable purchases worth ₹50 lakhs shown in P&L:
If consumables are purchased mostly in cash for such a large amount, it can be questioned on:

Source of funds: How was cash accumulated for such a big purchase?

GST Input Tax Credit (ITC): Proper invoices with GST must be available to claim ITC.

Audit & Compliance: Large cash expenses require supporting documents and may be challenged during audit.

Venkateshwarlu Pulluri

Venkateshwarlu Pulluri (Querist)
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12 August 2025 sir, 50 lakhs is not a single transaction, but through out the year, and cash withdrawals for purchases are from bank

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