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

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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14 July 2023 Yes, if the amount of each transaction is below Rs. 10,000/-

Himanshu

Himanshu (Querist)
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14 July 2023 All the amounts are above 10K

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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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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