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40A(3) & 194C

Dhruv (article) (100 Points)

02 July 2009

40A(3) :

Two bills of Rs 15000 and Rs17000 on different days of expenditure. the person pays 32000 in cash allowed ?

Tds

Two bills of Rs 15000 and Rs17000 on different days for contract . the person paid 32000 in cash/cheque ... liable for tds deduction ? why if yes ?

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19 Replies

Sourabh Sharma (CS CA (Final) M.com NCFM Derivative Capital Market Mutual Funds) (771 Points)
Replied 02 July 2009

Payment of more then 20000 rs.in one day not allowed even if the bills were of different dates to the same party.

TDS is to be deducted if any one bill is of above 20000 rs. or total yearly bills exceeds above rs. 50000.

pankaj (International Tax consultant) (66 Points)
Replied 03 July 2009

Excuse me I differ with the opnion of Mr.sharma.It is not so .If there are 2 different bills of lower amt then 20000 and aggregate of the payment in cash exceeds 20000 to the same person in a day for these 2 different bills will not attract provisions of sec 40A(3).for eg. Mr A received 2 bills from his supplier, 1 for Rs 18000 & other for Rs 19500 and now Mr A makes the payment to his supplier in cash for both of these bills together then even though cash payment to one person at a time exceeds Rs 20000 it will not be dissallowed.

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 03 July 2009

The payments will be disallowed after the recent amendments and also tax needs to be deducted u/s 194C.

(Guest)

Hi Dhruv,

we will treat each invoice as seperate transaction, so even though aggregate payment exceeds Rs. 20,000 but still will be allowed as the limit is tested transaction wise & not otherwise. So I agree with Mr.Pankaj.

As For TDS it shall be deducted if one of the bill exceeds Rs. 20,000 or total annual payment exceeds Rs. 50,000. so in this case you don't have to deduct TDS. So I agree with Mr. Sourabh.

Sourabh Sharma (CS CA (Final) M.com NCFM Derivative Capital Market Mutual Funds) (771 Points)
Replied 03 July 2009

The following sub-sections (3) and (3A) shall be substituted for sub-section (3) of section 40A by the Finance Act, 2008, w.e.f. 1-4-2009 :

(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 by an account payeee cheque drawn on a bank or account payeee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure."

Dhruv (article) (100 Points)
Replied 03 July 2009

i still have no clear cut answer on my Tds query !!

Max Payne (employed) (2569 Points)
Replied 03 July 2009

Yes you have to deduct TDS. 194 C will attract if single payment exceeds Rs.20000 or annual payment exceeds 50000

Ref: para 159.3 page A303 Direct taxes ready reckoner, Dr VK Singhania, Taxmann publications, AY 2008-09 &2009-10

CA Asha (Student) (188 Points)
Replied 03 July 2009

I agree wid Mr. Sourabh completely........ the recent amendments have brought about this kind of treatment.

praveen (Chartered Accountant) (6971 Points)
Replied 03 July 2009

yes if the aggregate payment for two or more bills is paid on a single day in cash and if such amount is more than Rs.20 K then it is disallowed.

CA,CS, ICWA Inter MANOJ KEDIA (Working With Educomp) (99 Points)
Replied 03 July 2009

in my openion sec 40A(3) Will not be applicable as one bill does not exceed more than rs 20000

but TDS wll be liable because either payment or credit should be more than rs 20000

here payment is more than 20000 rs

Late CA Sampat Jain (Chartered Accountant) (4772 Points)
Replied 03 July 2009

payment or aggregate of payments made to a person in a day is relevant for the purose of section 40(A)(3)

(Guest)

Dont confuse with the word bill.

why all are geting confused.

You should consider the payment amount for expense during a day to a single person.

If payment exceeds Rs.20000 in cash then the entire amount will be disallowed.

What Mr.saurabh has posted is absolutely right.

CA Devanshi Gandhi (Ajani) (FCA DISA Mcom CIFRS & LLB) (9058 Points)
Replied 03 July 2009

tds and sec 40A(3) are seperate provisions, if bill amount and payment amount is more than 20000 than expenditure will be disallowed and tds need to be deducted if provisions are satisfied n if tds is not deducted than exp. will be disallowed.

here as bills amount are less than 20000 it will not be disallowed.

CA Abhiram Bharat. (Assistant Manager Taxation) (508 Points)
Replied 03 July 2009

sec 40A(3) provides dt where the payment or aggregate of payments to a single person, otherwise than by account payee cheque/draft exceeds rs. 20000 , 100% of such expenditure shall be disallowed.

now, we must not be confused as EACH bill not exceeds rs. 20000. i.e.. the amount of each individual bill does not attract the provision of sec 40A(3) as it is less than rs. 20,000. THOUGH THE AMOUNT OF PAYMENT EXCEEDS RS. 20,000 , NOTHING SHALL BE DISALLOWEDOUT OF RS. 32000.

TDS U/S 194C SHALLBE DUDCTIABLE ONLY IF THE AMOUNT OF INDIVIDUAL PAYMENT EXCEEDS RS.20000 OR THE AGGREGATE OF PAYMENTS EXCEEDS RS 50000 IN ANY FINANCIAL YEAR.. THE SAID QUERRY DOESN'T CONTAIN ANY OF THE CONDITIONS. HENCE, TDS NOT TO BE DEDUCTED.