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Disallowance u/s 40(a)(ia) or 40A(3)

Satish Makam (Asst. Manager - Accounts) (294 Points)

06 October 2009

If the rent Rs.50,000/- PM is paid in cash and No TDS is deducted.

now my doubt is the disallowance is u/s 40(a)(ia) or 40A(3).

My net profit before any disallowances is 500000.

now what amount would be taxable after disallawances?

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9 Replies

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 06 October 2009

if cash is paid towards any expenses for more than Rs. 20000/- during a day whole of such expenses shall be disallowed u/s 40A(3). in your example payment of Rs. 50000/- is totally disallowed.Your taxable income after disallowance shall be Rs. 500000+50000= Rs. 550000/-

regards,

ratan

CA Pradeep Gupta (CA) (155 Points)
Replied 06 October 2009

In this type of problems, just consider which section come first in Act.

1 Like

Max Payne (employed) (2569 Points)
Replied 06 October 2009

Assuming that the TDS provisions are attracted under 194-I, it will be disallowed U/s 40(a)(ia) since that section comes before 40A(3).

swaroop (CA Final) (95 Points)
Replied 06 October 2009

Hey satish why to worry man when it is cash payment. just split off the payments and raise cash payment vouchers. so it wont cover under Sec. 40 for payment of expense in cash > 20000 and also u need not deduct any tax as u can split the vouchers into as many number as u want

Dharmendra Singhal (Senior Article) (30 Points)
Replied 07 October 2009

total payment was 50000 then spilt up the payment and raise the cash payment voucher then no requirment of disallowance u/s 40(a)(ia) or 40A(3)

Max Payne (employed) (2569 Points)
Replied 07 October 2009

There is certainly disallowance.

TDS on rent will get attraced if the credits or payment to each payee exceeds Rs.120,000/- per annum. So if you are paying rent from february, the amount will not attract section 194-I. If you are booking the expense in the books of account, then it will get disallowed, since you are not booking the TDS at the time of credit or payment (whichever earlier).

See the rental agreement of the client yaar, cos you cant just account for only 2 months rent or split payments.

Dont take crook to allow the expenses on which TDS is not deducted. Claim the expense in the next year by depositing it with the Dept.

And an expense cannot be disallowed Under 2 sections creating double disallowance.

1 Like

Gurmet Siingh (Chartered Accountant) (413 Points)
Replied 07 October 2009

Hi satish,

As per my view, this payment will attract the provision of Sec.40A(3) 'coz any payment above Rs.20000/- is disallowed forever.

Sec.40a(ia) is not applicable 'coz for not deducting TDS u can avail the deduction in later years when u deduct & pay TDS.

So Sec.40A(3) is applicable & u won't get the deduction for this expense 'bcz harsher penalty will levy.

Thx

1 Like

ca tarun sharma (SERVICE) (277 Points)
Replied 07 October 2009

hey satish for avoiding provision of sec 40A(3) u have to split off the rent payment in amount less than rs 20000 & if u r individual assessee & ur books of a/c have not been audited us 44AB in last year then u r not required to deduct tds other wise deduct tds & deposit d same in current year then rent will be allowed in current year but in previous year d same will be disallowed u/s 40(a) & ur taxable income will be rs 500000+600000 = 1100000