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Section – 40A - Measures to discourage cash transactions

 

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. 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.

 

In order to disincentivise 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 from twenty thousand rupees to ten thousand rupees in 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

 (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. 

 

The amendment will be effective from 1st April 2018.

 

Section – 40-A(3) – Measures to discourage cash transactions

 

According to the existing provision, payment or aggregate payments made to a person in a day otherwise than by account payee cheque exceeding Rs. 20,000/- is not allowed as deduction.

It is proposed that the threshold limit will be reduced from Rs. 20,000/- to Rs. 10,000/-. If any expenditure is incurred in a particular year for which payment exceeding Rs. 10,000/- is made in subsequent year otherwise than by account payee cheque, it will be deemed to be profit and gains of business.

Specific mode to payment is extended to cover use of electronic clearing system through a bank account. 


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