Cash payment of 20,000 and Income Tax Implications - Professionals - Taxation - TIK Share
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Cash payment of 20,000 and Income Tax Implications


CA Pulkit Sharma

2013-12-31

As per section 40A(3) if in a day payment of more 20,000 is made to a party, the expense gets disallowed.

The faqs regarding these are:

Is the disallowance under Section 40A(3) for all payments?

As mentioned above payments made for expenses are disallowed. If payment is not for expense, question of disallowance does not arise.

If payment is made by uncrossed cheques does it get disallowed under section 40a(3) of Income Tax Act?

Yes

If cash is directly deposited to the Bank account of party, even than does section 40a(3) comes in picture?

The section say Cash payment and whether the cash is directly deposited into bank account or not its still a cash payment.

What Act requires is a tracing of the transaction. If cash is deposited directly, trace of deposit will not be available. Hence disallowed.

Does payment of more than 20,000 for Fixed Assests purchased attracts section 40a(3)?

No, the payment should be relating to expenses. Since one does not claim expenses of fixed assets purchased the section is not attracted.

Manish Agrawal

2014-01-17

What happens when Cash paid more than Rs. 20000/- towards purchase.

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CA Pulkit Sharma

2014-01-19

Purchase is also an Expense. Any payment in cash for Expense more than 20,000 is disallowed.

Since purchase is expense, it will be disallowed.

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Prëeyancá Åggarwâl

2014-09-21

Sir, But in the Tax recokner under 40(A)3 section specifically mention that cash purchase of FA more than 20,000/- ;its depreciation amount is allowed. para no.49.3-2 point 5

 

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Prëeyancá Åggarwâl

2014-09-21

Sorry in the first reply wrongly allow wrote.

Sir, But in the Tax recokner under 40(A)3 section specifically mention that cash purchase of FA more than 20,000/- ;its depreciation amount is disallowed. para no.49.3-2 point 5 - See more at: 

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CA Pulkit Sharma

2014-09-21

Yes, Priyanca you are right. Only depreciation will be disallowed and not the entire cost of asset. Section 40A3 disallows expenses claimed under section 30 to 37, since cost of asset is not covered under this section its not disallowed.

However section 40a3 is attracted on depreciation claimed on fixed assets. These are my personal opinions and require further study on this.

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