When following cash basis of accounting, are my cash purchases allowed for income tax calculation?

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When using the cash basis of accounting for tax, cash purchases are generally allowed for income tax calculations. However, there's a crucial limit: if any single transaction or the aggregate of payments to one person in a day exceeds £10,000 and isn't made via account payee cheque, bank draft, or electronic clearing system, that expenditure won't be deductible for tax purposes.

Himanshu

Himanshu (Querist)

14 July 2023 When following cash basis of accounting, are my cash purchases allowed for income tax calculation?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

14 July 2023 Yes, if the amount of each transaction is below Rs. 10,000/-

Himanshu

Himanshu (Querist)

14 July 2023 All the amounts are above 10K

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

14 July 2023 Not allowed ...
As per section 40A(3), where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds Rs 10000/-, no deduction shall be allowed in respect of such expenditure.

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