Regarding salary payment in cash

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Paying salaries in cash, especially amounts exceeding ₹10,000 per day per person, can lead to disallowance of the expense for tax purposes under Section 40A(3) of the Income Tax Act. This rule applies even if PF and ESI are not deducted, and such payments are generally not considered valid business expenses without proper banking channels. Non-deduction of mandatory contributions like PF or ESI can also raise compliance issues.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)
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29 November 2025 If we give cash salary to the person above 30,000 for particular month and PF ESI is not deducted then we can prove the salary expense?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 November 2025 Section 40A(3) of the Income Tax Act disallows deductions for business expenses, including salaries, paid in cash exceeding ₹10,000 to a single person in one day unless made via account payee cheque, bank draft, or electronic modes. Cash salary payments above this limit cannot be claimed as deductible expenses during tax computation, regardless of PF or ESI status. Exceptions exist for payments up to ₹50,000 in employee terminal benefits or in banking-unserved areas, but standard monthly salaries do not qualify.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 November 2025 Not deducting PF (mandatory for wages up to ₹15,000 unless exempted) or ESI (for wages up to ₹21,000) does not validate cash payments; it may instead raise compliance red flags. Self-made vouchers or affidavits rarely suffice as proof without bank trails, and tax authorities often disallow such claims due to unverifiable nature.

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