Salary to partners
This query is : Resolved
ADVOCATE NUSRAT
(Querist)
02 May 2016
in a firm partners are receiving salary of Rs 30000 per month.
whether i have to give it through bank or cash ???????
whether i have to give it through bank or cash ???????
02 May 2016
To pay by a/c payee cheque or a/c payee bank draft ,otherwise disallowance u/s 40A(3) of the Income tax Act,1961 attracts.
ADVOCATE NUSRAT
(Querist)
02 May 2016
THE FIRM HAS NOT ISSUED CHEQUES WHAT TO DO???????
MAY I GIVE 15000 TWO TIMES PER MONTH??? AS SALARY
MAY I GIVE 15000 TWO TIMES PER MONTH??? AS SALARY
22 July 2025
Regarding salary payment to partners in cash:
* **Section 40A(3)** of the Income Tax Act says any payment exceeding ₹10,000 made in **cash** to a person (including partners) is **not allowed as a deduction** for the firm.
* Therefore, **salary paid to partners should be paid by account payee cheque, bank draft, or electronic transfer** to be allowable as a deduction.
---
### If the firm has not issued cheques:
* Payments made **fully in cash exceeding ₹10,000 will attract disallowance** under Section 40A(3).
* Splitting payment into two cash payments of ₹15,000 each **does not help**, because each payment exceeds ₹10,000.
* Even if you split it into smaller payments below ₹10,000, the total amount paid in cash to the same person during a day **cannot exceed ₹10,000** (Section 40A(3) read with Explanation).
---
### What to do?
* Start paying partners through **bank transfers or account payee cheques** for salary to avoid disallowance.
* If cash payments have already been made above ₹10,000, expect that portion to be disallowed under Section 40A(3).
* For compliance and audit purposes, maintain proper payment proofs (bank statements, cheque copies).
---
If you want, I can help you draft a simple salary payment procedure to comply with these rules. Would you like that?
* **Section 40A(3)** of the Income Tax Act says any payment exceeding ₹10,000 made in **cash** to a person (including partners) is **not allowed as a deduction** for the firm.
* Therefore, **salary paid to partners should be paid by account payee cheque, bank draft, or electronic transfer** to be allowable as a deduction.
---
### If the firm has not issued cheques:
* Payments made **fully in cash exceeding ₹10,000 will attract disallowance** under Section 40A(3).
* Splitting payment into two cash payments of ₹15,000 each **does not help**, because each payment exceeds ₹10,000.
* Even if you split it into smaller payments below ₹10,000, the total amount paid in cash to the same person during a day **cannot exceed ₹10,000** (Section 40A(3) read with Explanation).
---
### What to do?
* Start paying partners through **bank transfers or account payee cheques** for salary to avoid disallowance.
* If cash payments have already been made above ₹10,000, expect that portion to be disallowed under Section 40A(3).
* For compliance and audit purposes, maintain proper payment proofs (bank statements, cheque copies).
---
If you want, I can help you draft a simple salary payment procedure to comply with these rules. Would you like that?
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