ITR
Cash payments that are disallowed for businesses
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Facts
Under Sec 40A(3) (now Sec 36), a payment above ₹10,000 in a day to one person in cash is disallowed as an expense, with limited exceptions. For transporters, the limit is ₹35,000.
Provisions and law
- Sec 40A(3), Income-tax Act 1961 (now Sec 36, Income-tax Act 2025)Cash payments above ₹10,000 a day to one person are disallowed
- Sec 37, Income-tax Act 1961 (now Sec 34, Income-tax Act 2025)Business expenses wholly and exclusively for the business are deductible
Analysis
The test is per person per day. Example: ₹15,000 paid in cash to a supplier on one day is fully disallowed, adding ₹15,000 to income. Splitting it into two bills on the same day does not help. Pay by bank transfer, UPI or account payee cheque.
Conclusion
- Review cash payments above ₹10,000 a day
- Disallow them in the computation
- Switch to bank or UPI payments
- Keep bills and payment proof
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