Income tax rule 40(A) 3 for payment exceeding 20000 & exceptions

Income tax has some rules to minimize the evasion of the payment made in cash. These rules are as follows.

1- Section 40A(3) a 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.

2- Section 40A(3)(B) It also provides that the payment will be deemed as profits of the business if the expenditure incurred in the books but payment is made exceeding Rs. 20000 in cash, otherwise of paying with payee account cheque, demand draft or any transaction made by banks like RTGS.

3- Section 40A (3) It provides that the payment in a single day should not be exceeding Rs. 20000. It doesn’t mean the single payment shouldn’t 20000 but the aggregate amount should not exceed the limit. Some parties split high value payment into several cash payment for evasion of section 40A (3) a, so this rule is for evasion of payments.

4- There is also a rule that payment made to a person in a single day, otherwise of paying with payee account cheque, demand draft or any transaction made by banks like RTGS, exceeds the limit; the payment will be deemed as profits of the company according to proposed sub-section (3) of section 40(A).

Exemptions to this provision: - These are the exemptions of these rules as Rule 6DD of income tax act 1962.

1- Rule 6DD(a):- When payments is made to

(a) Any bank or banking company.

(b) Primary agriculture credit society or primary credit society.

(c) Life insurance Corporation of India.

2-Rule 6DD (b):- When payment is made to the government.

3- Rule 6DD(c):- When payment is made by

(a) Any letter of credit arrangement through a bank.

(b) Mail or telegraphic transfer through a bank.

(c) Book adjustment from any account in a bank.

(d) Bill of exchange made to a bank.

(e) ECS through a bank.

(f) Debit or credit cards.

Here one thing is need to understand that bank means any bank, government or private, incorporated or not, either in India or outside, Bank is bank.

4:- Rule 6DD(d):- Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assesses to such payee.

1- Rule 6DD(e):- When the payment made to

(a) Agriculture or forest produces.

(b) Animal husbandry produce or poultry farm produce.

(c) Fish products.

(d) The products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products.

2- Rule 6DD (f):- When the payments are made for purchasing the products of cottage industry without the aid of power, to producer.

3- Rule 6DD (g):- When there is no bank service. It means on that day the particular service is not available or a person resides in some area where there is no bank available.

4- Rule 6DD (h):- This rule is for benefit of the employees. When the payment made to the employee in the connection of retirement, resignation, discharge or death of such employee, gratuity or such benefit can be paid as cash but not exceeding Rs. 50000.

5- Rule 6DD (i):- When an employee is temporary shifted to some place for more than 15 days where he/she does not have any account.

6- Rule 6DD (j):- When the payment is required to be made when bank is closed either by holiday or bank strike.

7- Rule 6DD (k):- When payment is made to the agents who required having cash for his/her services.

8- Rule 6DD (l) When payment made to any autorised dealer or a money changer for purchasing of foreign currency or traveler cheque for normal course of business.
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