CIRCULAR No. 2/2018 Dated 15.02.2018
Measures to discourage cash transactions.
19.1 Sub-section (3) of Section 40A of the Income-tax Act, before amendment by the Act, specified 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 of the Income-tax Act also provided 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.
19.2 In order to disincentivise cash transactions, section 40A of the Income-tax Act has been amended to provide for the following:
| (i) | To reduce the 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) | To expand the specified mode of payment under respective sub-section of section 40A of the Income-tax Act 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. |
19.3 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.