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Cash salary more than 10,000/-

Pradeep Kotecha (Account Manager) (64 Points)

27 January 2018

1) Can we make Employee salary in cash more than 10,000 and the same is allow under section 40A Income tax.

2) Can we pay bonus in cash if yes then how much amount maximum allowed.

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14 Replies

Ganga Bhavani Palaparthi (Article Student) (131 Points)
Replied 27 January 2018

Updated The limit of cash payment under section 40A (3) is now Rs 10000 now vide Finance Act 2017

Section 40A(3) provides that payments in excess of Rs 20000 in cash shall be disallowed while computing the ”profits & Gains from business or profession” . However,there are certain exceptions provided under Rule 6DD of Income Tax Rules.

Sub clause [j] of Rule 6DD by which law provides the circumstances under which the salary paid in cash exceeding Rs 10000 is disallowed. The Rule 6DD(j) is given as under

”6DD(j) 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 Income-tax Act, 1961, and when such employee

(A) 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

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

Apart from this ,if the place has no banking facility, then when you can pay salary exceeding Rs 10000 in cash.

What it means salary in cash in excess of Rs 10,000 in circumstances other that Rule 6DD(j) shall be disallowed .

2 Like

Ganga Bhavani Palaparthi (Article Student) (131 Points)
Replied 27 January 2018

Final Conclusion more than 10000 is disallowed and these rule is applicable to Bonus also Where aggregate payment exceeds 10000 it is disallowed under 40A(3)

Azeem Sayani (2 Points)
Replied 29 November 2018

Dear Miss Ganga,

Is this limit of Rs 10000/- applicable per employee per month or per financial Year.
If employee is receiving salary in cash what douments as proof should be maintained. Will Cash Voucher suffice?.
If Salary of employee is 25000. can he take 5000 cash and 20000 vide bank transfer.

Thanks alot in advance.

SHASHANK SARASWAT (ACCOUNTS EXECUTIVE) (81 Points)
Replied 17 December 2018

as per my understanding-as per section 40A(3) no expenses(REVENUE) exceeding Rs 10,000/- is allowed in cash including Salary. Further capital expenditure exceeding rs 10,000/- are disallowed by inserting proviso to section 43(1) i.e actual cost of asset.

Here 10,000 is for per bill per person in a single day. Hence in case of salary it is per employee per month(salary for month is a separate bill due on company by employee). However if company pays employee on p.a basis then this limit has to be counted for p.a. basis.

May be i am wrong, but this is the conclusion which i have derived from the section.

Thanks

SHASHANK

Aditya Aggarwal (Chartered Accountant) (46 Points)
Replied 22 March 2019

Limit under section 40A(3) of Rs 10,000 for cash expenditure is per person per day. This limit shall include payment for salary also. Suppose an employer pays a salary of Rs. 50,000 pm to an employee and claims that he pays salary of Rs. 10,000 on 5 different dates in the month (total 50k), legally the expense is valid but it is advisable not to follow such practice because practically salary is generally paid in one transaction and most probably might not accept the view.

Thanks.

1 Like

Theerthesh (Article Student) (28 Points)
Replied 12 July 2019

Section 40A(3) specifies that expenditure paid in cash in excess of Rs 10,000/- Per day per person, with having exceptions specified in rule 6DD. In the section nowhere mentioned that cash expenditure per transaction. my doubt is, can assessee make payment of any expenditure by splitting cash payment to more than one day, by making it not exceeding 10,000/- per day and whether it can be allowed?

1 Like

SHASHANK SARASWAT (ACCOUNTS EXECUTIVE) (81 Points)
Replied 07 August 2019

yes

KRISHNENDU MAJUMDER (Tax Consultant ) (6 Points)
Replied 13 August 2019

Yes cash salary upto 10000 thousand per month is legal as per income tax rules

Chetan Agrawal (5 Points)
Replied 31 December 2019

Cash paid as salary advance to driver for a month of Rs. 15000 will be disallowed?

shahyar husain (1235 Points)
Replied 13 November 2020

Eligible for employees drawing ₹21000 per month or less (basic + DA, excluding other allowances). As per the 2015 amendment, when salary exceeds ₹7000 or the minimum wages fixed by the government, bonus is payable on whichever is higher. 3. Bonus payable will be at a min rate of 8.33%, and max at 20 %.

M Venkat (CA finalist) (456 Points)
Replied 18 January 2021

What documentation shall be relevant for IT purpose to establish the cash payments are not fictitious?

Pradeep Shende (6 Points)
Replied 12 October 2023

CORRECT SIR, KINDLY MAKE SUCH MORE EXAMPLES ON PRACTICAL BASIS

Ayush (Executive ) (6232 Points)
Replied 16 October 2023

Section 40A(3) of the Income Tax Act disallows cash payments exceeding Rs 10,000 made to a single person in a single day as business expenses. Such payments are not deductible and increase taxable income, aiming to discourage cash transactions and enhance tax transparency. There are exceptions outlined in Rule 6DD where cash payments are allowed as deductions under specific circumstances.

Pradeep Shende (6 Points)
Replied 16 October 2023

This was the result I was surching for. Thanks sir. One more que. 1) we purchased material of rs. 25000/- in cash single transaction dt 2 sept. Now can i pass entry showing 3 different dates. Will it be fine?