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Is section 40a 3 applicable to trust

amol bramhankar (artical tranee) (277 Points)

24 May 2025

Is section 40a 3 cash payment limit applicable to trust

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Rama chary Rachakonda (Master in Accounts & high court Advocate) (8497 Points)
Replied 25 May 2025

Section 40A(3) of the Income-tax Act, 1961, restricts the allowability of expenses or payments made in cash exceeding ₹10,000 (or ₹35,000 in case of payments to transport operators) in a single day.

Applicability to Trusts -

*Yes, Applicable*: Section 40A(3) applies to all assessees, including trusts.

Therefore, if a trust makes a payment in cash exceeding the specified limit, the excess amount will be disallowed while computing the trust's income. Key Considerations -

*Cash Payments*: The restriction applies to cash payments, not payments made through other modes (e.g., bank transfers, cheques, digital payments). -

*Single Day*: The limit applies to payments made in a single day, not aggregate payments over a period. Implications for Trusts

- *Disallowance*: If a trust makes a cash payment exceeding the limit, the excess amount will be disallowed while computing its income, potentially leading to higher tax liability.

Trusts should ensure compliance with Section 40A(3) to avoid disallowance of expenses and potential tax implications.

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