Understanding 40A(3) and 40A(3A) 0f Income Tax Act, 1961 TAXCONCEPT

Section 40A(3) and Section 40A(3A) of the Income Tax Act provides that any expense made by the assessee for which payment or aggregate payments made to a person in a day other than account payee cheque and account clearing system exceeds Rs.10,000 then such expense shall be disallowed 100% and no such expenditure shall be eligible to claim as expenditure for computing Income under Income Tax act, 1961.

However the limit of Rs.10,000 has been increased to Rs. 35,000 in case payment is made for plying, hiring, or leasing of goods carriage

Section 40A(3A) comes into light when the expense has been booked in the previous year but the payment for the liability has been made in the subsequent year exceeding Rs. 10,000 other than account payee cheque and electronic clearing system to a person in a day, then such expense shown in the previous year will be shown as income and added to profit in the year the payment has been made.

For example,

Assessee incurs an expenditure of Rs. 50,000 for the purchase of Books on 10/08/2023. He makes 3 separate payments of Rs. 15000, Rs 13000, and Rs. 22000 all in cash to the concerned person in a single day. Since the aggregate payment exceeds Rs. 10,000 the entire Rs 50,000 shall not be allowed as expenditure in computing total income for the financial year 2023-24 

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