payment to farmers

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Samir (Querist)
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23 July 2007 Hi,

My client is wholesale dealer in red chilly. They purchase RED CHILLY from farmer on sale or return basis. when they make the payment the same is made in CASH and amount paid is excess of 20000/-.In this case does it gets covered under section 40A(3 ) and 20% are disallowed. I think payment made to farmers in excess of 20000/- are allowed. Could you please let me know the correct solution.

Sanjeev Kumar Varshney

Sanjeev Kumar Varshney (Expert)
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25 July 2007 Dear Samir,

There is no clearcut exemption in such case but you can see Rule 6DD ( f ), ( g) & (h ) given for some exceptions.
From the AY 2008-09, 100% of payments above Rs 20000/- will be disallowed as against 20% previously.

Samir

Samir (Querist)
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25 July 2007 Rule 6DD SAYS if the payment is made to the cultivator, grower or producer of such articles, produce or products;then its not disallowed.So does it mean we can make payment to farmers above 20000/-

Samir

Samir (Querist)
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26 July 2007 Rule 6DD SAYS if the payment is made to the cultivator, grower or producer of such articles, produce or products;then its not disallowed.So does it mean we can make payment to farmers above 20000/-

CA Nikita

CA Nikita (Expert)
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26 July 2007 Hello Samir,

Rule 6DD SAYS if the payment is made for the purchase of agriculture or forest produce and is made to the cultivator, grower or producer of such articles, produce or products in that case no disallowance u/s 40A(3) shall be made where any payment in a sum exceeding Rs.20,000/- is made....

so in this case there will be no disallowance if payment is made to the farmers in excess of Rs.20,000/-...

Samir

Samir (Querist)
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28 July 2007 Hi Nikita,

I would like to know,does the client needs to keep any proof to prove the payment is made to farmers

CA Nikita

CA Nikita (Expert)
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05 August 2007 Hello!!!

Receipt of goods worth that amt.. or the details of the farmers.. and payment details should be maintained in such a case so that in future id there is any controversy or disallowance made... you can proof it well..

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