Section 40a(3) rule 6dd (b) payment to govenment
This query is : Resolved
28 February 2012
My Client has made payment to ST Corporation above Rs. 20,000/- in cash.Whether such payment would attract section 40A(3)? or it would be exempted by rule 6DD? Whether payment to ST corporation would be regarded as Payment to State Government?
28 February 2012
What is ST corporation? what is exact nature of payment
23 July 2025
You're referring to **Section 40A(3)** of the Income-tax Act, 1961, and the related **Rule 6DD**, particularly **clause (b)**.
---
### 🔹 Section 40A(3) – Basic Rule:
> If a taxpayer incurs **expenditure** in respect of which **payment is made in cash exceeding ₹20,000** (now ₹10,000 in most cases) **in a single day**, such expenditure **shall not be allowed as a deduction** while computing income under the head “Profits and gains of business or profession.”
---
### 🔹 Exception: Rule 6DD
**Rule 6DD** provides situations where **cash payments above the limit are allowed**. Clause **(b)** of Rule 6DD states:
> *"Where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender."*
---
### 🔹 Application to Your Case:
#### ✅ Facts:
* Client made **cash payment exceeding ₹20,000** to **ST Corporation (State Transport Corporation)**.
* You're asking whether:
1. This is treated as payment to the **State Government**.
2. It qualifies under **Rule 6DD(b)**.
---
### 🔍 Analysis:
1. **Is ST Corporation = State Government?**
* **ST Corporations (like MSRTC, APSRTC, etc.)** are **State Government undertakings** (i.e., public sector corporations), but they are **not the State Government itself**.
* They are **separate legal entities**, usually incorporated under the **Companies Act or a State statute**.
✅ So: **Payment to ST Corporation is *not* the same as payment directly to the State Government.**
2. **Does Rule 6DD(b) Apply?**
* Rule 6DD(b) applies **only when payment is required to be made in legal tender (i.e., cash)** *under government rules*.
* If the ST Corporation **requires cash payment** (e.g., for emergency bus repairs, permits, etc.) **and does not accept cheques/DDs**, **you may argue applicability of Rule 6DD**.
* However, **you must have proof** that cash payment was **mandated or practically necessary**.
🔸 In most cases, **ST Corporations accept digital/cheque payments**, so if **cash was not mandatory**, **Rule 6DD(b) would not apply**, and **disallowance under Section 40A(3) would happen**.
---
### ✅ Conclusion:
* **Payment to ST Corporation is not considered payment to the State Government** for the purpose of **Rule 6DD(b)**.
* **Section 40A(3) would apply**, and the expenditure may be **disallowed** if:
* The payment exceeds ₹20,000 (or ₹10,000 as per current threshold),
* And it was made in cash,
* And no exception under Rule 6DD applies.
🔹 **Advice**: Unless you can clearly show that:
* The **payment was compulsory in cash**, and
* The **ST Corporation refused digital/cheque modes** due to rules or operational necessity,
…it is safer to assume that **Section 40A(3) applies**, and the deduction **may be disallowed**.
Let me know if you want help drafting a defense or explanation for the assessment proceedings.
---
### 🔹 Section 40A(3) – Basic Rule:
> If a taxpayer incurs **expenditure** in respect of which **payment is made in cash exceeding ₹20,000** (now ₹10,000 in most cases) **in a single day**, such expenditure **shall not be allowed as a deduction** while computing income under the head “Profits and gains of business or profession.”
---
### 🔹 Exception: Rule 6DD
**Rule 6DD** provides situations where **cash payments above the limit are allowed**. Clause **(b)** of Rule 6DD states:
> *"Where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender."*
---
### 🔹 Application to Your Case:
#### ✅ Facts:
* Client made **cash payment exceeding ₹20,000** to **ST Corporation (State Transport Corporation)**.
* You're asking whether:
1. This is treated as payment to the **State Government**.
2. It qualifies under **Rule 6DD(b)**.
---
### 🔍 Analysis:
1. **Is ST Corporation = State Government?**
* **ST Corporations (like MSRTC, APSRTC, etc.)** are **State Government undertakings** (i.e., public sector corporations), but they are **not the State Government itself**.
* They are **separate legal entities**, usually incorporated under the **Companies Act or a State statute**.
✅ So: **Payment to ST Corporation is *not* the same as payment directly to the State Government.**
2. **Does Rule 6DD(b) Apply?**
* Rule 6DD(b) applies **only when payment is required to be made in legal tender (i.e., cash)** *under government rules*.
* If the ST Corporation **requires cash payment** (e.g., for emergency bus repairs, permits, etc.) **and does not accept cheques/DDs**, **you may argue applicability of Rule 6DD**.
* However, **you must have proof** that cash payment was **mandated or practically necessary**.
🔸 In most cases, **ST Corporations accept digital/cheque payments**, so if **cash was not mandatory**, **Rule 6DD(b) would not apply**, and **disallowance under Section 40A(3) would happen**.
---
### ✅ Conclusion:
* **Payment to ST Corporation is not considered payment to the State Government** for the purpose of **Rule 6DD(b)**.
* **Section 40A(3) would apply**, and the expenditure may be **disallowed** if:
* The payment exceeds ₹20,000 (or ₹10,000 as per current threshold),
* And it was made in cash,
* And no exception under Rule 6DD applies.
🔹 **Advice**: Unless you can clearly show that:
* The **payment was compulsory in cash**, and
* The **ST Corporation refused digital/cheque modes** due to rules or operational necessity,
…it is safer to assume that **Section 40A(3) applies**, and the deduction **may be disallowed**.
Let me know if you want help drafting a defense or explanation for the assessment proceedings.
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