Income tax cash

Employees of a company pay Rs. 60000-70000 in cash in a day for the work of the company Such as Staff Werfare Exp, Traveling Exp, Entertainment exp, they record all the expenses in the company. That the company can pay the expenses in 6 installments of cash on different dates
Examples
Date 1 april
Freight exp a/c Dr. 15000
staff welfare exp a/c Dr. 7000
others exp a/c Dr. 12000
To Ravinder employees (petty cash) 34000
payment
1apr,2apr,3apr,4apr payment done different date because income tax rule according 10000 cash payment in one day
This mentioned method correct or wrong

please suggest
thanks advance
Replies (1)

Hey Kumar Rajat! About your query on cash payments and recording expenses in installments due to the ₹10,000 cash payment limit rule under Income Tax, here’s the clarity:


Key Rule Under Income Tax Act:

  • Section 40A(3) of the Income Tax Act restricts cash payments exceeding ₹10,000 in a single day to a single party for expenses (except wages, certain payments to government, etc.).

  • If this limit is breached, the entire payment (or excess) may be disallowed as a business expense.


Your Scenario:

  • Your company wants to pay expenses like staff welfare, traveling, entertainment in multiple cash installments on different dates so that no single payment exceeds ₹10,000 per day.

  • For example, ₹34,000 paid as ₹15,000 freight, ₹7,000 welfare, ₹12,000 others but split into multiple cash payments across days.


Is this method correct or wrong?

  • It is acceptable to split payments into multiple installments across different days so that each day's cash payment does not exceed ₹10,000 per recipient.

  • However, it should not be done as a deliberate attempt to circumvent tax rules. The business should maintain proper records and justifications for each payment.

  • Also, splitting payments must be genuine and supported by vouchers/invoices and evidence of actual disbursement.

  • If the payments are made to multiple different parties (vendors), then the ₹10,000 limit applies to each party separately.


Important Points:

  • If the company is paying multiple expenses to different parties, ₹10,000 limit applies per party per day.

  • If payments are to the same party, then the total cash payment in a day should not exceed ₹10,000.

  • The company should maintain petty cash book properly showing the split payments.

  • Repeated splitting to evade the rule may invite scrutiny or disallowance.


Summary:

  • Your method of splitting payments across different dates is generally acceptable as long as it is genuine, well documented, and payments do not exceed ₹10,000 to the same party on the same day.

  • Ensure all payments have proper bills/vouchers to claim expenses.


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