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

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Purchasing materials worth ₹50 lakh entirely in cash throughout the year is highly questionable and likely unacceptable. While not a single transaction, large cash payments, especially exceeding ₹2 lakh, are restricted by tax and GST laws and should ideally be made via banking channels for transparency. Such significant cash expenditure can attract scrutiny from tax authorities regarding the source of funds and may hinder GST input tax credit claims without proper documentation.

Venkateshwarlu Pulluri

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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