CA.Vaibhavi (Practicing Chartered Accountant) (92 Points)
24 November 2011Payments made in cash above 20000Rs attracts Section 40A(3)
Payments here means, for the purpose of this section is Expenditure( Revenue/Capital)
Now, My question is:
Payments made (>20000)for repayment of Secured Loans and Immovable Property Loans is disallowed or not?
Looking for an answer with explanations and if possible with relevant case laws.
Thank you.
Phalgun
(Audit Manager)
(327 Points)
Replied 24 November 2011
Under the act any payment made in excess of Rs.20000 in cash to purchase fixed asset or any transaction dealt pertaining to section 32-36 is dealt in cash. Then the same is not disallowed. There is an exception to section 40A(3) under rule 6DD.
Payment made in excess of Rs.20000 in cash for settling loan is disallowed.
Giridhar S Karandikar
(Team Lead)
(7543 Points)
Replied 24 November 2011
While computng the Income from business you take the Profit as per Profit & Loss account. After that you make certain aditions & deductions whihc are there in the Profit & Loss account. Life Insurance premium is the drawings of the Proprietor/Partner. Hence it is shonw as deduction from Capital of the proprietor/Partner so there is no question of disallowing the same. How can you treat Life Insurance Premium as an Asset?? Please explain.
As immoveable property is shonw as an asset & the secured loans are shonw as an liability in the B/S, hence the paymetns made towards these will not be disallowed. However the interest payment made on secured loans will be disallowed under sec 40(A)3.
Z
( )
(2960 Points)
Replied 24 November 2011
Principle repayment is not an expense hence section 40A(3) is not applicable. However Interest is an expense which is covered u/s 40A(3) therefore if interest paid is more than 20,000 and if same is paid otherwise by way of account payee cheque or account payee bank draft then it will be dissallowed.(as pointed out by Mr. Giridhar)
CA Navin Jain
(MANAGER (FINANCE & ACCOUNTS))
(11768 Points)
Replied 24 November 2011
expenses made in cash more then Rs. 20000 sahll be allowed under sec 40(A)3 subject to rule 6DD,
Payments made (>20000)for repayment of Secured Loans and Immovable Property Loans other then account payee cheque is disallowed under sec 269ss n 269st.
GOPAL AGGARWAL
(DOING NOTHING)
(1339 Points)
Replied 24 November 2011
In my view only expenditures claimed in the P&L A/c is liable for disallowance u/s 40A(3) of the act
And for secured loan there is one another scetion i.e. 269SS for accepting the loan
and 269T for repayment of loan
CS RAJESH C.CHOUDHARY
(ASSISTANT MANAGER)
(14607 Points)
Replied 25 November 2011
Reffer this dear..
CA Himanshu Bansal
(Risk Manager)
(2345 Points)
Replied 25 November 2011
It shall be disallowed U/S 269T.
Read the following provision :
https://www.vakilno1.com/bareacts/incometaxact/s269t.htm
pawan
(Tax consultant )
(131 Points)
Replied 26 November 2011
For more cleaification see ready reckoner, which is helpful for ur any query,
Vikas
(CA)
(1135 Points)
Replied 27 November 2011
Hi Vaibhavi,
First of all, its a good query...
As rightly said, the Sec.28 to Sec.44AD are applicable to the income from business or profession. hence the Sec.40A(3), would not be applicable to the repayment of loan, as it does not form the part of your Profit & Loss Account. But still there is an exception to Sec.40A(3), under Rule 6DD, wherein it is stated that if you are making payment to a banking or financial inst. then this limit will not be applicable...
Again Sec.269SS & T are applicable to the loan taken from those other than the a banking or financial institution, etc.
Hence if your repayment does not violate Sec.269SS & T, then there should not be any problem...
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