Section 40a(3)
Querist :
Anonymous
(Querist) 17 December 2011
This query is : Resolved
I AM A TRADER OF FOODGRAIN. I HAVE PURCHASED AGRICULTURE PRODUCE LIKE WHEAT, RICE FROM VARIOUS FARMERS AT MINE BUSINESS PLACE BY CASH WHICH IS BELOW 20000 AND ALSO ABOVE 20000. IS THIS TRANSACTIONS COMES UNDER SEC 40A(3) OF THE INCOME TAX ACT. PLEASE HELP ME AS SOON AS POSSIBLE AND GIVE ME SOME CITATION.
Sankaranarayanan
(Expert) 17 December 2011
If the amount exceed 20000 then the receipt should by way of cheque and not by cash and the same when the amount being paid. Or the amount should be received by different date then it is accepted so single time the receipt or payment should not exceed 20000 and above
YOGESH NARANG
(Expert) 18 December 2011
1- Section 40A(3) It provides that any expenditure incurred as a payment in sum of exceeding Rs.20000/- otherwise of paying with payee account cheque, demand draft or any transaction made by banks like RTGS, shall not be allowed as a deduction. However if payment is being made for hiring or leasing, the limit is 35000.
so, in my opinion 40A(3) applicable on payment not on receipts if it exceed the maximum limit of 20,000/-
because liability is on the person who is paying not on the person who is receiving.
Guest
(Expert) 18 December 2011
Payment be made by cheque to have proper accounting for the purpose of IT benefits. Otherwise all expenditure, if made in case, for the transactions can be held invalid.
soumitra basu
(Expert) 18 December 2011
If you purchase the goods mentioned in query directly from the grower or producer then you may pay any amount in cash without any limit. No disallowance shall be called for.
Raj Kumar Makkad
(Expert) 18 December 2011
Rule 6D Of The Income Tax Rules Rule Deals With, Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made by a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.
RULE BEFORE AMENDMENT
The main part of the Rule earlier read as,No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely :-
RULE AFTER AMENDMENT
Now the amended Rule reads as, No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section ( 3A ) of section 40A where 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 in the cases and circumstances specified hereunder, namely:-
In the 2008 Finance Act, Section 40 A has been amended as follows:-
Amendment of section 40A
In section 40A of the Income-tax Act, for sub-section (3), the following subsections shall be substituted with effect from the 1st day of April, 2009, namely:-
“(3) 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.
(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees:
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection where 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, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.”
The Government explained this amendment as follows:-
Amendment to the provisions of section 40A (3) of the Income-tax Act, Section 40A (3)(a) of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000 /- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Section 40A (3)(b) also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.
Section 40A (3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion. It has come to notice that the provisions of section 40A (3) are being circumvented by splitting a particular high value payment to a person into several cash payments, each below Rs. 20,000/-. This splitting is also resorted to for payments made in the course of a single day. Courts have also held that the statutory limit in section 40A (3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. According to the judicial opinion, the words used are `in a sum’, i.e., single sum.
Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction, the rigours of section 40A (3) will not apply.
Akshay
(Expert) 27 February 2020
Section 40(A)(3) IT Act-Disallowance of Business Expenditure
1.Payment towards any expenditure in excess of Rupees 10000/- on a single day to a single person in any mode other than Account Payee cheque/ Account Payee bank draft or NEFT/ECS.
2.If expenditure made in excess to 10000 without the above mode it is not allowed.
3.This Limit of 10000 implemented on 1st April 2017 before that it was 20000 rupees.
4. This limit in case of hiring, leasing goods carriage etc. is 35000 rupees.
Rule 6DD Exception to Section 40(A)(3)
Which talks about some specified circumstances where cash payment allowed:
1.Payment to government ie RBI (Reserve Bank of India)
2.Any banking company
3.Corporative Bank
4.Land Mortgage Bank
5.LIC (Life Insurance Corporation of India)
6. To Agriculturist
7. To employee on Retirement ( upto 50000 )
8. If in case of Bank Holiday also it is allowed.
Raj Kumar Makkad
(Expert) 27 February 2020
Where is the need to attend such an old query without anything from the side of the author???
