Cash Expense in Corporate Sector

AS 340 views 3 replies

Dilipkumar

Senior Executive

29 Points Joined November 2014

I work in the telecom sector, where our company provides telecom-related engineering services to major telecom partners. In this sector, much of the work is carried out by daily wage laborers, such as civil construction laborers, painters, earthing laborers, excavator operators, and JCB operators. As these activities are typically performed by daily laborers, we don't have formal proof of payment, except for the cash vouchers provided by our staff, who make the payments to them on-site.

We deposit funds to facilitate the work, and the assigned staff arranges for the laborers to be present at the site and makes payments directly to them. The staff typically takes photos of the work being carried out, but we do not receive any formal proof of payment other than the cash voucher.

Given this situation, what is the cash limit for expenses allowed under income tax regulations? What kind of proof do we need to collect for such payments? Since we operate across multiple states, how can this process be streamlined? What should we do in case the income tax department raises objections regarding cash expenses? I would appreciate your suggestions on how to address these concerns.

Replies (3)

Rama chary Rachakonda

Master in Accounts & high court Advocate

9434 Points Joined December 2011

Cash Limit for Expenses under Income Tax Regulations The cash limit for expenses allowed under income tax regulations in India is ₹10,000 per day per person, as per Section 40A(3) of the Income-tax Act, 1961.

However, there are some exceptions to this rule, such as payments made to government departments, banks, and other specified entities.

Proof Required for Cash Payments To claim deductions for cash payments, you should maintain the following documents:

1. _Cash vouchers_: Obtain cash vouchers from the staff making payments, which should include details like date, amount, and purpose of payment.

2. _Photographs_: Collect photographs of the work being carried out, which can serve as evidence of the expenses incurred.

3. _Attendance records_: Maintain attendance records of the daily wage laborers to support the payments made.

4. _Payment registers_: Keep a payment register to record all cash payments made to laborers.

Streamlining the Process Across Multiple States To streamline the process across multiple states:

1. _Implement a digital payment system_: Consider implementing a digital payment system, such as mobile wallets or bank transfers, to reduce cash transactions.

2. _Use a centralized accounting system_: Maintain a centralized accounting system to track and record all payments made across different states.

3. _Designate a single point of contact_: Appoint a single point of contact in each state to oversee and coordinate the payment process.

4. _Develop a comprehensive payment policy_: Establish a comprehensive payment policy that outlines the procedures for making cash payments, maintaining records, and ensuring compliance with income tax regulations.

Addressing Objections from the Income Tax Department In case the income tax department raises objections regarding cash expenses: 1. _Provide detailed documentation_: Submit detailed documentation, including cash vouchers, photographs, attendance records, and payment registers, to support the cash payments made.

2. _Explain the business necessity_: Provide a clear explanation of the business necessity for making cash payments, highlighting the difficulties in implementing digital payment systems in remote areas or for daily wage laborers.

3. _Seek professional advice_: Consult with a tax professional or chartered accountant to ensure compliance with income tax regulations and to address any objections raised by the income tax department.

4. _Be prepared for an audit_: Be prepared to undergo an audit, if required, and provide additional information or clarification as needed.

prasad Nilugal

GST Practitioner & Accounts

15022 Points Joined March 2014

As per section 40A(3) of the income tax act 1961, if you are making payment towards the an expenses more than 10000/- ( ten thousand) same will be disallowed , meaning thereby your profit will increase in P&L A/c and you have to pay more income tax .

Whenever you are paying Cash , in your Case it is advisable that you have to take signature on Cash Voucher, for receipt of Cash .If you are paying more than 5 thousand, then revenue stamp is mandatory along with signature of receiver.

Take more Opinion on this.

Dilipkumar

Senior Executive

29 Points Joined November 2014

As I said we deal with daily labours only on daily basis in PAN India. For Example, excavation will happen in 10 states, each state will have 10-20 sites. For doing this activity, we may pay 700 to 1500 to one labour. In one site minimum 1-3 labours required. In this case, the cash expense will be approx 70K to 100K PAN India. These expenses are genuine, without labour or excavation we can't complete the work and handover to client as we agreed. What is the best solution to prove that the expense/payment are genuine and consider as expense in books.