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Allowability of bonus paid in cash

ravikumar (audit assistant) (24 Points)

29 August 2012

Bonus paid to employees in cash of Rs.40,000/- is allowable under Income Tax Act ?

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8 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 30 August 2012

No it is not allowable as it is not paid to govt but is being paid to employee.

Pooja (service) (26 Points)
Replied 30 August 2012

if bonus paid to individual employee does not exceed 20,000 in a day, it will be allowable as expenditure under Income tax Act.

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 30 August 2012

The wording of section 40(A)(3) states that any payment exceeding the prescribed limit of 20k shud be disallowed. bonus is paid at one time in one single payment to the respective employees. Moreover the section talks of payment & not of individual whihc . So I think that the pymt would be disallowed.

KARANDEEP,CA,B.Com,CS FNL (JOB) (457 Points)
Replied 30 August 2012

Originally posted by : Giridhar S Karandikar
	No it is not allowable as it is not paid to govt but is being paid to employee.

Agreed

Pooja (service) (26 Points)
Replied 30 August 2012

Originally posted by : Giridhar S Karandikar
	The wording of section 40(A)(3) states that any payment exceeding the prescribed limit of 20k shud be disallowed. bonus is paid at one time in one single payment to the respective employees. Moreover the section talks of payment & not of individual whihc . So I think that the pymt would be disallowed.

As per income tax Circular No. 1/2009, dated 27-3-2009

the provisions of sub-section (3) of section 40A have been amended providing that the provisions of sub-section (3) of section 40A shall also be attracted where the aggregate of payments made to a single party otherwise than by an account payee cheque, drawn on a bank or account payee bank draft exceeds twenty thousand rupees in a day.

Moreover as per the 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 by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.

Section talks about a person and a person means a single person. Further as per the amendment by circular no 1/2009, aggregate payments are means for a single party.

Practically also, on salary day a company may pay salary in cash to its various employees which will exceed 20,000 however if salary to any individual emplyee does not exceed 20,000, the whole expenditure will be allowed as deduction under income tax act.