Regarding Cash Payment of Staff Salary

If you pay salary to employee by cash more than 10,000/-, per month, this expns may be disallowed as business expenditure by the I T dept. So, don't pay salary in cash.

For ordinary business expenditure, a cash payment to an employee is generally disallowed as a deduction if it exceeds ₹10,000 in a day to one person under section 40A(3). The threshold is ₹35,000 only for payments to a person engaged in plying, hiring or leasing goods carriages. Splitting a payment does not help if the total cash paid to that person that day exceeds the limit.

Example: If the company pays an employee ₹12,000 in cash on Monday for an expense or reimbursement, the amount may be disallowed in computing taxable business income, even if it is recorded in the P&L. If the ₹12,000 is paid by account-payee cheque, bank draft, ECS or another prescribed electronic mode, this cash-payment disallowance does not apply. The rule is subject to specified exceptions in Rule 6DD; the facts and nature of the payment matter.

This check should be built into employee reimbursement and payroll workflows before payments are released. Manual review of daily cash totals is difficult, while automation can reduce repetitive checks and still leave exceptions and tax judgments under professional control. At Jir AI we provide 2,000+ AI agents and 650+ integrations to streamline your practice’s day-to-day workload. For a practical walkthrough of automating these checks, connect with us on WhatsApp https://wa.me/message/3HVOZ7HIY4ESC1.

Cash salary payments:

• Sec 40A(3): cash payment above Rs 10,000 to a person in a day is disallowed. Paying monthly salary of Rs 20,000 in cash in one go is hit; splitting across days to avoid the limit isn't recommended (courts look at substance).

• Pay salaries by bank transfer. Rule 6DD exceptions are narrow (e.g. salary paid at a remote site where there's no bank, with TDS deducted, for temporary staff).