Cash Payment Limit Reduced to Rs 10000

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

Section.40(A)3-The existing provision 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 Rs.20,000(twenty thousand rupees),?shall not be allowed as a deduction except in specified circumstances as referred to in Rule 6DD of Income-Tax Rules.1962

Further, Section 40A(3A) 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(3)

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 from Rs.20,000 to Rs.10,000in 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.

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

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 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.

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