Cash payment

Yes as per Rule 6DD of the I-T RUles, it would be disallowed, becasue the case falls other than those mentioend below.  When the advance is transferred to salary it would get disallowed if it exceeds 20k.

(h)  where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees;

(i)  where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee—

  (i)  is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and

 (ii)  does not maintain any account in any bank at such place or ship;