Sec 40(A)3

yes sec 40A(3) is applicable on all of the above. As it is applicable on any payment in excess of 20000

Yup in all the cases...

All such expenses, if exceeds 20000, should be paid by cheque or else disallowed

i think cash can be given to branches(provided payment to branches are not claimed as an expense in HO books), as its just internal transfer,but cash  expenses paid by them should be less than 20,000or through crossed, and all above said  above 20,000 should not be through cash or open cheque

Section 40A(3) of the Income Tax Act, 1961 reads as follows

"Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure"

By considering the above detailed contents of Section 40A(3), please find below the responses to the query raised by you:

Query

Salaries to staff :

• salary is an expenditure, hence Section 40A(3) is applicable, so payment in excess of Rs 20000 no deduction shall be allowed

Loans/Advance to staff

• Loan to staff is a loan which is repayable by the staff and is not an expenditure to the company, Hence, Section 40A(3) would not apply
• Advance to staff is an advance and not an expenditure to the company , Hence, Section 40A(3) would not apply
• in case where the advance to staff is adjusted with his expendiure which is more than Rs.20000 in a day then Section 40A(3) would apply

Advance towards salary to staff

• salary is an expenditure, hence, advance payment in excess of Rs 20000 no deduction shall be allowed, Section 40A(3) is appilcable

Advance for expense to be incurred(Can we give advances towards expenses to our branches in excess of Rs.20000/-)

• Advance to Branch for expenses is an advance and not an expenditure to the company , Hence, Section 40A(3) would not apply
• in case where the advance to Branch is adjusted with the expendiure which is more than Rs.20000 to a person in a day then Section 40A(3) would apply
• Mere advance to branches Section 40A(3) would not apply

Hope the same clarifies.

Dear Naidu,

Please find attached documents containing the responses to the queries raised by you.

Hope the same clarifies.

40A(3) applies to all the expenditure except those which are laid down in rilu 6 DD

in your case

1) Loans/Advance to staff if repayable will not come under the scope of this section as it is not an expenditure

2)Advance for expense to be incurred(for giving advances to branch)will not come under the scope of this section as here only transfer of funds are taking place but actual expenditure is not happening(SUBSTANCE OVER FORM)

EXCEPT THIS ALL THE TRANSACTION MENTIONED BY U WILL  COME UNDER THE SCOPE OF THIS SECTION

Dear Naidu,

section 40A(3) applies to expenditures claimed u/s 30 to 37 including advances made for such expenditure. To be more simple 40A(3) apllies only to the expenditure shown in P& L A/c. In your query only Salary payment and advances to salary or expenses will attract sec 40A(3). Loan to staff or Branch advance will not attract 40A(3).

Just read this paragraph:

Acceptance, repayment

"Acceptance of loan or deposit of Rs 20,000 or more otherwise than by an account-payee crossed cheque or draft is liable for penalty — which is equal to the sum accepted".

Similarly, repayment of such loan or deposit otherwise than by account-payee crossed cheque or draft is liable for penalty equal to the amount repaid.

Acceptance of advance money for supplies to be made when refunded otherwise than by account-payee crossed cheque or draft whether liable for penalty was debated recently in the Chaubey Overseas Corpn. vs CIT (2008) 170 Taxman 9 (All.) case.

The assessee argued that the amount received as advance for supplies is a trade deposit but the court held that the Section covers every kind of deposit, be it trade deposit or business deposit or deposit as such.

 Pl give ur Opinions

the word 'expenditure' in section 40A(3) covers all categories including that on purchase of goods and merchandise as also payment for services.the payment made in advancing loans and returning the principle amount of borrowed moneysare not covered by thse provision of  section 40A(3).-Letter : F. No. 1(22)/69-TPL (Pt.), dated 18/04/1969

dear Wanishree naidu sir

i guess its sec 269 that deals wit loans not 40 a 3

Its applicable for all yer........... Cheeeers.......

if the payment is made in excess of 20,000 then the mode of payment should be by a/c payee cheque otherewise it will disallowable

Dear Friends,

Rule 6DD exempts payment made to the government in cash. I request you to provide me with the definition of government as  meant in the said Rule 6DD and what does it includes. Also whether it includes...

1. BMC or any Local Authority

2. Bharat Petroleum ( a govt. undertaking or PSU)

Please help as soon as possible

Thanks & Regds.

Shekhar

Section 40A(3) of the Income Tax Act, 1961 reads as follows

"Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure".

Hence provisions of section 40A(3) applies to all the expenditure except those which are laid down in Rule-6 DD.

In your case:

1) Loans/Advance to staff if repayable will not come under the scope of this section as this is not an expenditure which can be claimed u/s 30 to 37 as a charge against profit, hence provisions of section 40A(3) will not be applicable.

2)Advance for expense to be incurred (for giving advances to branch) will not also come under the scope of this section as here only transfer of funds are taking place but actual expenditure is not happening, hence provisions of section 40A(3) will also not be applicable.

In all other cases, will be applicable, as such.

CMA. BK Harichandan.