Payment made more than 20000 to sundry creditors

I AGREED TO MR PRADEEP GARG

In order to disincentive cash transactions, it is proposed in the budget w.e.f. AY 2018-19(FY 2017-18) to amend the provision of Section 40A of the Act to provide the following:

i. To reduce the existing threshold of cash payment to a person from twenty thousand rupees to ten thousand rupees in a single day; i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of income from “Profits and gains of business or profession”........................................

As nothing has been specified for in the case of payments made for plying, hiring or leasing goods carriages limit is 35000/- ; It seems it remains unaffected

Cash Payment made to creditor in excess of monetary limit specified shall be deemed as business income of the Financial Year of Payment.

Subject to following two condition:

(i)Expenditure has been allowed as deuction in the financial year in which expense incurred and

(ii) In coming Financial Year cash payment is made in contravention of specifed monetary limit.

if it is allowed as expenditure then it can be dissallowed. but in this case payment to creditors is not allowed to profit and loss account.how can it be dissallowed

Two methods of accounting are specified under the Act for computing Profit & Gain of Business or profession and these are (1) Accrual Basis of Accounting and (2) Cash Basis of Accounting.

Assessee has an option to follow either one of the two methods of accounting. Change in method of accounting once opted allowed or not has to be seen from ICSD I “Accounting Policies”

Now i hope you will understand the implication of Accrual system of Accounting for an outstanding expense, which is in your case resulted into “creditor”.

I know about cash and accrual system. i am talking about trade creditors if we purchase goods on acrrual basis then he will become trade creditor. we pay him for the purchase of stock and not expense.

Refer Section 40A(3A)

OK I got this, THANK YOU