Section 40 A 3

Under Section 40A(3) of the Income Tax Act, any expenditure for which a payment (or aggregate of payments) is made to a single person in a single day in cash, exceeding ₹10,000, is not allowed as a deductible business expense.

Analysis of Your Case

In your scenario, you purchased two assets from the same party on the same day:

• Asset 1: ₹8,000

• Asset 2: ₹5,000

• Total: ₹13,000

Because these payments are made to the same party on the same day, the aggregate payment is ₹13,000. Since this total exceeds the threshold of ₹10,000, it falls under the purview of Section 40A(3).

Treatment for Income Tax Purposes

1. Disallowance of Expenditure: The entire amount of ₹13,000 will be disallowed as a business deduction when computing your taxable business income.

2. Impact on Depreciation: Since these are assets, this provision also impacts the "actual cost" for the purpose of claiming depreciation. If the cash payment exceeds the ₹10,000 limit, the amount paid in cash is typically excluded from the "actual cost" of the asset, meaning you would not be able to claim depreciation on that value.

Important Considerations

• Aggregation: The law specifically mentions the "aggregate of payments" made to a person in a day. Splitting the bill into two separate payments of ₹8,000 and ₹5,000 to the same person on the same day does not bypass the rule.

• Exceptions (Rule 6DD): There are specific exceptions provided under Rule 6DD (e.g., payments made to the government, banking companies, or in circumstances where banking facilities were not available). Unless your situation falls under one of these narrow, prescribed exceptions, the disallowance will apply.

Summary: Because the total cash payment of ₹13,000 to a single party in one day exceeds the ₹10,000 limit, the expense will be disallowed for tax purposes, and you may be unable to claim depreciation on the assets purchased with that cash.