Receipt of payments from clients
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
28 May 2013
I am working for a company in service sector where a lot of clients pay for bills issued in name of client company through there personal accounts or accounts other than company accounts.
My query is; whether our company can receive the same through individuals/other accounts or insist on payment through company only in whose name bill is issued?
Are there any limitations under Income Tax Act 1961 or Companies Act 1956?
My query is; whether our company can receive the same through individuals/other accounts or insist on payment through company only in whose name bill is issued?
Are there any limitations under Income Tax Act 1961 or Companies Act 1956?
Querist : Anonymous
Querist :
Anonymous
(Querist)
03 June 2013
Dear Experts, awaiting reply to the above.
20 July 2025
Can the company receive payments through individuals/other accounts?
Practically: A company can receive payments from any bank account, even if it is from individuals or third-party accounts, as long as the payment is intended for the company against its invoices.
However, best practice and good corporate governance recommend that payments should ideally be made from the account of the client company (the party to whom the invoice is issued). This avoids complications in audit, accounting, and regulatory compliance.
Legal & Compliance perspective
1. Income Tax Act, 1961:
There is no direct prohibition on receiving payments from accounts other than the client’s company account.
But:
If payment is received from unrelated third parties, the Income Tax Department may ask for documentary evidence to establish the source of funds and legitimacy of transaction to rule out any undisclosed income, money laundering, or tax evasion.
Section 269ST prohibits cash receipts exceeding Rs. 2 lakh in aggregate from a single person in a day, but bank payments are exempt.
The company must maintain proper books of accounts and supporting documents to explain such receipts.
2. Companies Act, 2013 (replacing 1956):
No specific provision restricts receipt of payments through third-party accounts.
However, under Section 128, companies must maintain proper books of accounts reflecting all transactions clearly.
For audit and transparency, it is preferable that payments correspond to invoices and are traceable to the invoiced party.
Risks and recommendations:
Receiving payments from third parties can raise compliance and audit risks:
Possible difficulty in explaining the source of funds.
May raise red flags during tax or regulatory scrutiny.
Companies should try to insist on payment from the client’s official bank account to avoid these risks.
If payments from other accounts happen, maintain detailed documentation and declaration from the payers explaining the relationship with the client and reason for payment.
Practically: A company can receive payments from any bank account, even if it is from individuals or third-party accounts, as long as the payment is intended for the company against its invoices.
However, best practice and good corporate governance recommend that payments should ideally be made from the account of the client company (the party to whom the invoice is issued). This avoids complications in audit, accounting, and regulatory compliance.
Legal & Compliance perspective
1. Income Tax Act, 1961:
There is no direct prohibition on receiving payments from accounts other than the client’s company account.
But:
If payment is received from unrelated third parties, the Income Tax Department may ask for documentary evidence to establish the source of funds and legitimacy of transaction to rule out any undisclosed income, money laundering, or tax evasion.
Section 269ST prohibits cash receipts exceeding Rs. 2 lakh in aggregate from a single person in a day, but bank payments are exempt.
The company must maintain proper books of accounts and supporting documents to explain such receipts.
2. Companies Act, 2013 (replacing 1956):
No specific provision restricts receipt of payments through third-party accounts.
However, under Section 128, companies must maintain proper books of accounts reflecting all transactions clearly.
For audit and transparency, it is preferable that payments correspond to invoices and are traceable to the invoiced party.
Risks and recommendations:
Receiving payments from third parties can raise compliance and audit risks:
Possible difficulty in explaining the source of funds.
May raise red flags during tax or regulatory scrutiny.
Companies should try to insist on payment from the client’s official bank account to avoid these risks.
If payments from other accounts happen, maintain detailed documentation and declaration from the payers explaining the relationship with the client and reason for payment.
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