Section 40a(3)
This query is : Resolved
14 March 2012
As per Section 40(A)(3) if any asset purchased by way of cash exceeding more than Rs. 20,000/- then depreciation on that is disallowed in that year. My Question is whether in subsequent year depreciation is allowable on that assets????
14 March 2012
Section 40(A)(3) is not applicable in case of assets.
14 March 2012
Dear
Section will not be applicable when Asset is acquired / purchased.
Thanks
Mihir Doshi
Section will not be applicable when Asset is acquired / purchased.
Thanks
Mihir Doshi
31 March 2012
@Mihir Doshi
Sir what about depreciation on that asset in subsequent year.
Sir what about depreciation on that asset in subsequent year.
23 July 2025
This is a very important and practical question. Let’s clarify it with the current legal position and interpretations:
🔷 Issue:
If a capital asset is purchased in cash exceeding ₹10,000 (earlier ₹20,000):
Is depreciation disallowed under Section 40A(3) in that year?
Is depreciation allowed in subsequent years?
🔶 Short Answer:
👉 Section 40A(3) does not apply to capital asset purchases directly, but depreciation can be disallowed under Section 43(1) if paid in cash.
🔷 Detailed Explanation:
✅ 1. Section 40A(3) – Scope
Applies to revenue expenditure only — not capital expenditure like purchasing a machine, vehicle, etc.
So, Section 40A(3) itself does not disallow the capital expenditure, nor depreciation directly.
🔶 2. But Section 43(1) Comes into Play
👉 Section 43(1) defines the "actual cost" of an asset for depreciation purposes.
📌 Explanation 13 to Section 43(1) (inserted by Finance Act, 2017) says:
“Where an assessee incurs any expenditure for acquisition of an asset in respect of which a payment exceeding ₹10,000 is made otherwise than by account payee cheque/draft or ECS, such payment shall not be included in actual cost of the asset.”
🚫 So: If cash payment > ₹10,000 was made for buying the asset, that amount is excluded from actual cost, and thus no depreciation is allowed on that part.
🔶 3. 🔁 Depreciation in Subsequent Years?
Since the cost itself is reduced permanently under Section 43(1), depreciation in subsequent years is also reduced.
❌ It is not a timing disallowance (like in some revenue items) — it's a permanent exclusion from depreciation base.
📌 Example:
Asset bought for ₹1,00,000 in cash (not through account payee cheque/ECS)
Entire payment made in cash (>₹10,000)
Under Section 43(1), actual cost = ₹0
So, depreciation = ₹0 for all years — not just the first year.
✅ Final Answer:
Section 40A(3) does not apply directly to capital asset purchases.
But under Section 43(1), depreciation is disallowed permanently for that portion of cost paid in cash over ₹10,000.
❌ Depreciation is not allowable in subsequent years either for that disallowed amount.
🔷 Issue:
If a capital asset is purchased in cash exceeding ₹10,000 (earlier ₹20,000):
Is depreciation disallowed under Section 40A(3) in that year?
Is depreciation allowed in subsequent years?
🔶 Short Answer:
👉 Section 40A(3) does not apply to capital asset purchases directly, but depreciation can be disallowed under Section 43(1) if paid in cash.
🔷 Detailed Explanation:
✅ 1. Section 40A(3) – Scope
Applies to revenue expenditure only — not capital expenditure like purchasing a machine, vehicle, etc.
So, Section 40A(3) itself does not disallow the capital expenditure, nor depreciation directly.
🔶 2. But Section 43(1) Comes into Play
👉 Section 43(1) defines the "actual cost" of an asset for depreciation purposes.
📌 Explanation 13 to Section 43(1) (inserted by Finance Act, 2017) says:
“Where an assessee incurs any expenditure for acquisition of an asset in respect of which a payment exceeding ₹10,000 is made otherwise than by account payee cheque/draft or ECS, such payment shall not be included in actual cost of the asset.”
🚫 So: If cash payment > ₹10,000 was made for buying the asset, that amount is excluded from actual cost, and thus no depreciation is allowed on that part.
🔶 3. 🔁 Depreciation in Subsequent Years?
Since the cost itself is reduced permanently under Section 43(1), depreciation in subsequent years is also reduced.
❌ It is not a timing disallowance (like in some revenue items) — it's a permanent exclusion from depreciation base.
📌 Example:
Asset bought for ₹1,00,000 in cash (not through account payee cheque/ECS)
Entire payment made in cash (>₹10,000)
Under Section 43(1), actual cost = ₹0
So, depreciation = ₹0 for all years — not just the first year.
✅ Final Answer:
Section 40A(3) does not apply directly to capital asset purchases.
But under Section 43(1), depreciation is disallowed permanently for that portion of cost paid in cash over ₹10,000.
❌ Depreciation is not allowable in subsequent years either for that disallowed amount.
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