Cash Purchase Above ₹10,000, ITR/40A(3) Treatment?

• 10 Aug Purchase (₹1,15,787): Disallowed as a business expense under Section 40A(3) because the single-day cash payment exceeded ₹10,000.

• 21 Aug Purchase (₹49,737): Disallowed separately under Section 40A(3) because its individual single-day cash payment also exceeded the ₹10,000 threshold.

• Impact on ITR (FY 2026–27): Both amounts cannot be claimed as business deductions and will be added back to compute taxable business profits, leading to a higher tax liability unless covered by narrow Rule 6DD exceptions.

Section 40A(3) disallows any business expenditure where payment exceeds Rs 10,000 in cash to a single person in a single day.

Practical application:
- Threshold: Rs 10,000 per person per day in cash. If you pay a single vendor Rs 8,000 cash in morning and Rs 3,000 cash in the same day - total Rs 11,000 - full amount disallowed
- What gets disallowed: The ENTIRE cash payment is added back to income (not just the excess over Rs 10,000)
- Exceptions: Payments to banks, government, RBI-approved instruments, and a few specific sectors are exempt

How to report in ITR:
- In ITR-3 or ITR-4: The disallowed amount under 40A(3) is added back in the P&L adjustment schedule
- Look for the row that says Inadmissible expenses under Section 40A(3) in the business income computation

Risk if missed: AO can disallow during scrutiny and charge interest. Many small cash purchases across a year add up. Keep a register of all cash payments and flag any above Rs 10,000. This [ITR filing guide for small businesses](https://taxgarden.in/blog/itr-filing-login-guide-step-by-step-2026) covers the disallowance adjustments in the return form.