Making payment over 20000? Cash or Cheque?

Making cash payment to your suppliers? You should be aware of the limit specified by the IT department for cash payment to a single person per day. Under section 40(A)3 Rs. 20,000 is the maximum allowable cash payment to a single person on a particular day. Not enough right? Yes this limit is just for “Cash Payment” i.e. if you want to pay a sum exceeding Rs. 20,000 to a person on a single day then you have to make the payment by an account payee cheque or a bank draft. What happens if you don’t follow this guideline? The particular payment will not be allowed as deduction against revenue. Yes, now you are compelled to follow the provision, because you don’t want to pay excess tax right? If you don’t follow the provision then your tax liability might increase. Note: However if payment is being made for plying, hiring or leasing goods carriages then Limit for these section is Rs. 35000,instead Of Rs. 20,000. What if someone else on your behalf has paid to your creditor? Will the amount not be allowed as deduction even then? Let’s understand this by a recent ruling by the High Court of Madhya Pradesh. Where assessee purchased land in an auction and payment on its behalf was made by ‘Z’ through pay orders and drafts prepared from bank account of ‘Z’, impugned disallowance made by Assessing Officer under section 40A(3) in respect of said payment was to be set aside. Cash payment exceeding prescribed amounts – Assessee purchased a land for Rs. 3.5 crores in an open auction – Payment of amount was made by ‘Z’ Ltd. on behalf of assessee – Assessing Officer made a disallowance of 20 per cent of total payment of Rs. 3.5 crores by holding that payment was made in cash as details of payment were not available in conveyance deed – Commissioner (Appeals) noted from records that entire payment was made through pay orders and drafts prepared from bank accounts of ‘Z’ Ltd. on behalf of assessee – He thus deleted disallowance made by Assessing Officer – Tribunal confirmed order of Commissioner (Appeals) – Whether finding recorded by Tribunal being a finding of fact, no question of law arose therefrom – Held, yes In favour of assessee. Hence, if the third person made payment by way of cheque then the expenses would be allowed as deduction. However, if the payment was made in cash by the third party, the provisions of section 40(A)3 would be applicable and the expenses disallowed. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests?  at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.