Applicability of 40A(3)

[Pradeep Kumar]

Dear all

If we make the payment in cash more than 20000 then 40A(3) will be considered. My question is , If we make the payment of salary or full and final settlement to any employee then there is any need to check the compliance of 40A(3).

Thanks and regards

Pradeep Kumar

[Harish Chander Bhatia]

Applicability of 40A(3)

 Yes, section 40A(3) is squarely applicable to the salaries paid, as it is claim as an expenses. It is advised the higher salary should always be paid by cheques  to establish it genuniity. 

[Pradeep Kumar]

Thanks Harish.....

AI Summary

Section 40A(3) cash payment rule applies to salary; cheque payments advised to establish genuineness for higher amounts. Applicability of 40A(3) to salary payments arises where cash disbursements exceed the statutory cash-payment threshold and are claimed as business expenses; employers should regard salary and full-and-final settlement payments as subject to the cash-payment limitation and prefer payment by cheque or other traceable instrument to establish genuineness and reduce disallowance risk.