CASH PAYMENT LIMIT REDUCED TO Rs 10000/- FROM Rs 20000/- EARLIER .RULES ALSO APPLICABLE ON CAPITAL EXPENSES (2022)

The existing provision of sub-section (3) of Section 40A of the Act, provides that any expenditure in respect of which payment or aggrega...

The existing provision of sub-section (3) of Section 40A of the Act, provides that any expenditure in respect of which 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,shall not be allowed as a deduction except in specified circumstances as referred to in Rule 6DD of the Income-tax Rules, 1962.

CASH PAYMENT LIMIT REDUCED TO Rs 10000/- FROM Rs 20000/- EARLIER .RULES ALSO APPLICABLE ON CAPITAL EXPENSES (1)


Further, sub-section (3A) of section 40A also provides for deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year of a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft.


Reduction in Limit under section 40A(3A)

In order to dis incentivise cash transactions, it is proposed to amend the provision of section 40A of the Act to provide the following:

(i) To reduce the existing threshold of cash payment to a person fromtwenty thousand rupeestoten thousand rupeesin a single day; i.e any payment in cash above ten thousand rupees to a person in a day, shall not be allowed as deduction in computation of Income from "Profits and gains of business or profession";

(ii) Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but the cash payment is made in any subsequent year of a sum exceeding ten thousand rupees to a person in a single day; and

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(iii) Further expand the specified mode of payment under respective sub-section of section 40A from an account payee cheque drawn on a bank or account payee bank draft to by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account.

These amendments will take effect from 1 April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
Update :Cash Payment allowed for Agriculture Produce without Limit

Will the provisions of Sec. 40A(3) be attracted when the expenditure exceeds Rs. 20,000 or the payment exceeds Rs. 10,000?

The provisions of Sec.40A(3) are attracted only when a payment exceeding Rs. 10,000, at a time is made in a mode other than account-payee cheque/draft. However, where several cash payments made to same party during a day, the limit of Rs. 10,000 is to be applied to the aggregate of cash payments made during the day. It is possible that a person may make different payments at different times during the day to the same person and the aggregate of the payments during the day to the same party may exceed Rs. 10,000. In such a case also, section 40A(3) is attracted.

Mr. X purchased goods on credit on 01.08.2017 for Rs. 29,000. He makes payment of bills as follows:- On 02.08.2017 Rs. 10,000 On 03.08.2017 Rs.9,000 On 04.08.2017 Rs. 10,000. Whether such an expenditure shall be disallowed u/s 40A(3)?

No ,Nothing shall be disallowed as none of the payment exceeds Rs. 10,000 during one day.

Mr. X purchased goods on following dates:-

  • 01.08.2017 for Rs. 7,000
  • 02.08.2017 for Rs. 10,000
  • 03.08.2017 for Rs. 8,000

He makes a cash payment of the bills on 04.08.2017 of Rs. 25,000. Whether such expenditure shall be disallowed u/s 40A(3)?

a) Yes b) No

Correct Answer: a) Justification of correct answer: Nothing shall be allowed as cash payments exceed Rs. 10,000 during one day. Thus, option a) is correct

Whether the provisions of Sec. 40A(3) would be applicable where the payment was made in advance for purchase of goods ?

Where the goods are purchased against cash whether the payment is made prior to the delivery of the goods or after delivery of goods, it is payment in cash and it is payment of source (As amended by Finance Act, 2013) consideration for the goods purchased and the same is covered by Sec. 40A(3).

Company X makes payment to transport operator of Rs. 32,000. Whether same will be allowed as deduction ?

As per Sec. 40A(3) payment to transport operator is allowed up to Rs. 35,000. In this case deduction will be allowed.

Date wise change in Limit under section 40A(3A)

  • Rs. 2500/ - 1.4.1969
  • Rs. 10000/ - 1.4.1989
  • Rs. 20000/ - 1.4.1997
  • Rs. 10000/ - 1.4.2017

Also Read[Cash Payment Restriction under Income Tax Act]

NO DEPRECIATION AND DEDUCTION U/S 35AD ON CASH EXPENSES EXCEEDING Rs 10000/-

Under the existing provisions of the Act, revenue expenditure incurred in cash exceeding certain monetary threshold is not allowable as per sub-section (3) of section 40A of the Act except in specified circumstances as referred to in Rule 6DD of the Income-tax Rules, 1962.

However, there is no provision to disallow the capital expenditure incurred in cash. Further, section 35AD of the Act , inter-alia provides for investment linked deduction on the amount capital expenditure incurred, wholly or exclusively for the purposes of business, during the previous year for a specified business except capital expenditure incurred for acquisition of any land or goodwill or financial instrument.

In order to discourage cash transactions even for capital expenditure, it is proposed to amend the provisions of section 43 of the Act to provide that where an assessee incurs any expenditure for acquisition of any asset in respect 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 or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost of such asset.

It is further proposed to amend section 35AD of the Act to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.

These amendments will take effect from 1 April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

[CHECK IN INCOME TAX SLABS FOR FY 2017-18 AY 2018-19][INCOME TAX CALCULATOR FOR FY 2017-18 AY 2018-19][BUDGET SPEECH 01/02/2017][RESTRICTION ON CASH TRANSACTION OF 3 LAKH OR MORE][MAJOR CHANGES IN INCOME TAX IN BUDGET-2017]

15. In section 40A of the Income-tax Act,—
(a) in sub-section (2), in clause (a), in the proviso, after the words “Provided that”, the words, figures and letters “for an assessment year commencing on or before the 1st day of April, 2016” shall be inserted;

(b) with effect from the 1st day of April, 2018,—

(A) in sub-section (3), for the words “exceeds twenty thousand rupees”, the words “or use of electronic clearing system through a bank account, exceeds ten thousand rupees,” shall be substituted;

(B) in sub-section (3A),—

  • (i) after the words “account payee bank draft,”, the words “or use of electronic clearing system through a bank account” shall be inserted;
  • (ii) for the words “twenty thousand rupees”, the words “ten thousand rupees” shall be substituted;
  • (iii) in the first proviso, for the words “exceeds twenty thousand rupees”, the words “or use of electronic clearing system through a bank account, exceeds ten thousand rupees,” shall be substituted;
  • (iv) in the second proviso, for the words “twenty thousand rupees”, the words “ten thousand rupees” shall be substituted;

(C) in sub-section (4),—

  • (i) after the words “account payee bank draft”, the words “or use of electronic clearing system through a bank account” shall be inserted;
  • (ii) after the words “such cheque or draft”, the words “or electronic clearing system” shall be inserted.

16. In section 43 of the Income-tax Act, in clause (1), with effect from the 1st day of April, 2018,—

(a) after the proviso and before Explanation 1, the following proviso shall be inserted, namely:—

“Provided further that where the assessee incurs any expenditure for acquisition of any asset or part thereof 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 an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost.”;

“Provided that where any capital asset in respect of which deduction or part of deduction allowed under section 35AD is deemed to be the income of the assessee in accordance with the provisions of sub-section (7B) of the said section, the actual cost of the asset to the assessee shall be the actual cost to the assessee, as reduced by an amount equal to the amount of depreciation calculated at the rate in force that would have been allowable had the asset been used for the purposes of business since the date of its acquisition.”.

13. In section 35AD of the Income-tax Act, in sub-section (8), in clause (f), after the words “shall not include”, the words “any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees or” shall be inserted with effect from the 1st day of April, 2018.

Deduction u/s 80G

• Not admissible if donation made exceeding Rs. 2000 in cash by a person (Earlier Rs. 10000/-).

SECTION 269 ST
No person to receive an amount > Rs. 2 Lakhs otherwise than by A/c payee cheque/draft or use of electronic clearing using bank a/c (i.e. primarily in cash):

  • in aggregate from a person in a day; or
  • in respect of a single transaction; or
  • in respect of transactions relating to one event or occasion from a person

Section 269 ST Not applicable to

  • Receipts by:
    • Government,
    • Bank,
    • Post Office Savings Bank or Co-operative Bank,
  • Section 269SS transactions
  • Such other persons or class of persons or receipts, which the CG may notify
  • Not applicable to receipts from Bank, Post Office Savings Bank or Co-operative Bank

EXEMPTIONS section 269ST- NOT. NO. 57/2017 DT. 3.7.17

  • Receipt by a business correspondent on behalf of bank or co-operative bank, as per RBI
  • Receipt by a white label automated teller machine operator from retail outlet sources on behalf of bank or co-operative bank, as per RBI
  • Receipt from an agent by an issuer of pre-paid payment instruments as per RBI
  • Receipt by a company or institution issuing credit cards against bills raised in respect of one or more credit cards
  • Receipts which is not includible u/s 10(17A) - Awards by CG / SG

Examples ,whether 269 ST applicable or Not

  • A sells his personal Innova car to Y for Rs. 3 L in cash?
    • Yes
  • Son receives gift Rs. 5 L in cash from his father
    • Yes
  • X receives Rs. 2.10 Lakhs on 21.7.2017 for following from Y in cash :
    • Loan Rs. 0.15 Lakhs
    • Against sale of Car Rs. 1.95 Lakhs
      • No
  • Father of Ms. C receives gifts from various persons on occasion of C’s marriage aggregating Rs. 5 Lakhs?
    • No

Mixed Example

Mr. A receives cash payment of Rs. 3.75 Lakhs from ABC P. Ltd. on 25th July 2017 for the following:

  • Rs. 2.10 Lakhs part payment for invoice no. 4. dt. 17.6.2017 of Rs. 3 Lakhs
  • Rs. 95000/- part payment for invoice no. 6 dt. 30.6.2017 of Rs. 2.50 Lakhs
  • Rs. 70000/- part payment for invoice no. 12 dt 10.7.2017 of Rs. 1.50 Lakhs

Implications are:

  • 271DA penalty on Mr. A for Rs. 3.75 Lakhs as the amount received from a person on single day is more than 2 lakh rupees.
  • Mr. A to report Rs. 2.10 Lakhs in SFT in Form 61A
  • ABC P. Ltd expense of Rs. 3.75 Lakhs(210000+95000+70000) would be disallowed u/s 40A(3) as the amount is more than Rs 10000/-.

Mr. A takes loan of Rs. 5 Lakhs from ABC Ltd(NBFC) by cheque, but repays instalment of Rs.

20000/- p.m. in cash. Is ABC Ltd liable for Section271DA penalty?

No ,As per Circular No. 22 of 2017 dated 3rd July 2017 Receipt in nature of repayment of loan by NBFCs /HFCs - receipt of 1 instalment of loan repayment in respect of a loan shall constitute a ‘single transaction’ as specified in S. 269ST(b) & all the instalments paid for a loan shall not be aggregated for the purposes of determining applicability of S. 269ST

FAQs

How much cash payment is allowed as per income tax? ›

payment or aggregate of payments made in cash in a day exceeds Rs. 10,000/-, 100% of such payment will be disallowed while computing his taxable income from business/ profession. (Refer Section 40A(3)). However some exceptions are provided (See Rule 6DD of the Income Tax Rules).

Can we pay more than 10000 in cash? ›

10,000 to any person in a day shall not be allowed as deduction in computation of Income. Deeming a payment as Profits and Gains of Business or Profession if the Expenditure is incurred in a particular year but the Cash Payment is made in any subsequent year of a sum exceeding Rs. 10,000 to a person in a single day.

Where the amount of an expenditure claimed as deduction exceeds Rs 10000 and it is not made by account payee cheque draft? ›

In this case the total amount paid in a day to one person exceeds Rs 10,000 and the payment has been made through a bearer cheque or cash. This expenditure will be disallowed under section 40A(3) of the income tax act and no deduction for such payment will be allowed to M/s ABC.

What is the limit of making payment in cash in a day? ›

When it comes to self-employed taxpayers, they cannot claim any expenditure over ₹ 10,000 if it's paid in cash to a single person in a single day. The law establishes a higher threshold of ₹ 35,000 for payments given to a transporter.

Can we pay cash more than 20000? ›

Under Sec 269SS of the Income Tax Act, 1961, one cannot take a loan or pay more than Rs 20,000 in cash. Any violation can invite a stiff penalty under Section 271D, which can be equal to the loan or deposit amount.

How much money can I keep in my bank account without tax? ›

If a savings account holder deposits more than ₹10 lakh during a financial year, the income tax department may serve an income tax notice. Meanwhile, cash deposits and withdrawals in a bank account crossing ₹10 lakh limit in a financial year must be revealed to the tax authorities.

What is the limit for cash transaction? ›

2 lakh or more from 'a person' in a day. No person shall receive an amount of two lacs rupees or more in respect of a single transaction otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account .

What is the limit for cash purchase? ›

Cash expense Limit- Section 40A(3)

Threshold limit: Cash payment exceeding Rs 10000 to person in a single day not allowed. The Limit is extended to Rs 35000 in case payments are being made for transporters. Amount of penalty- No penalty but expense will be disallowed.

What is the limit of cash transaction in GST? ›

There is no limit prescribed for Cash Transactions under GST Law as of now, which means any registered person may enter into any business transaction attracting GST Law in cash of any amount including Sales/Purchases to/from unregistered persons.

Where the amount of an expenditure claimed as deduction exceeds 20000 it should be paid by? ›

Where the payment is made to: Reserve Bank of India (RBI) or any other bank. State Bank of India (SBI) and its subsidiaries. Co-operative bank or Land mortgage bank.

Can proprietor withdraw cash more than 10000? ›

Any payment exceeding Rs 10,000 per day (in a single transaction or in aggregate) is not allowed as business expenditure. The provision of Section 194N will be applied to the payments made on or after 1 September 2019. But the limit of Rs 1 crore will apply to the cash payments/withdrawals made during FY 2019-20.

Is TDS applicable on cash payments? ›

TDS is deducted by banks (private, public, and co-operative) or post offices. The tax is deducted when making any cash payment to any person in excess of ₹ 20 lakh or ₹ 1 crore (as the case may be) from his/her account maintained with such banks or post offices.

How much money can I deposit in my bank account without tax in India? ›

Cash deposits in bank accounts: CBDT has made it mandatory for a bank or a cooperative bank to report cash deposits aggregating to Rs 10 lakh or more during a financial year, in one or more accounts (other than a current account and time deposit) of a person.

What is the maximum amount I can maintain in savings bank without tax in India 2022? ›

If a savings account holder deposits more than ₹1 lakh in one's savings account, then the income tax department may send income tax notice. Similarly, for current account holders, the limit is ₹50 lakh and on violation of this limit may also liable for income tax notice.

How can I avoid paying taxes on my savings account? ›

How to Avoid Tax on a Savings Account
  1. Invest your assets in a tax-deferred account(s), such as a traditional IRA or 401(k) to put off paying taxes until you withdraw the money in retirement.
  2. Keep your money in a tax-exempt account(s), such as a Roth IRA or a Roth 401(k).
Oct 15, 2021

How much cash deposit is suspicious in India? ›

Individuals who deposit cash above Rs. 2.5 lakh and senior citizens who deposit cash above Rs. 5 lakh may be scrutinised. Any amount within the specified limit will be excluded from scrutiny considering that the money is from household savings, cash withdrawals, earlier income, and so on.

What is the limit for cash transaction? ›

2 lakh or more from 'a person' in a day. No person shall receive an amount of two lacs rupees or more in respect of a single transaction otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account .

How much cash is allowed in home? ›

Cash Transaction Limit – Section 269ST

Section 269ST imposed restriction on a cash transaction and limited it to Rs. 2 Lakhs per day. Section 269ST states that no person shall receive an amount of Rs 2 Lakh or more: In aggregate from a person in a day; or.

What is the limit for cash receipt? ›

Income Tax Act restricts any person to receive an amount of two lakh rupees or more in cash, from a person in a day, in respect of a single transaction or in respect of transactions relating to one event or occasion from a person, under Section 269ST.

What is the maximum amount of cash you can keep at home? ›

Failure to reveal the source of the money kept in the house can lead to a fine of up to 137 percent. Transactions exceeding Rs 20 lakh in cash in a financial year can attract a penalty. According to the CBDT, it is necessary to provide PAN number for depositing or withdrawing cash more than Rs 50,000 at a time.

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