Clause - 015 - Amendment of section 40A.

THE FINANCE BILL, 2017

Clause 15 of the Bill seeks to amend section 40A of the lncome -tax Act relating to expenses or payments not deductible in certain circumstances.

Sub-section (3) of the said section provides that where the assessee incurs any expenditure in respect of which payment exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft to a person in a single day, no deduction shall be allowed in respect of such expenditure.

It is proposed to amend the said sub-section so as to provide that where the payments or aggregate of payments in a day to a person otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees in a day, no deduction shall be allowed under the said sub-section or, as the case may be, such payment shall be deemed to be the profits and gains of business or profession of the assessee.

Consequential amendments are also proposed to be made in sub-sections (3A) and (4) of the said section.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-20l9 and subsequent years.

 

Restriction on cash payments: non banked payments above the prescribed limit are nondeductible and may be taxable. Amendment lowers the cash payment threshold for deductibility from twenty thousand rupees to ten thousand rupees per person per day and requires payments above that limit to be made by account payee cheque, account payee bank draft, or electronic clearing through a bank account; amounts paid otherwise will be disallowed as deductions or deemed to be profits and gains of business or profession. Consequential changes to related sub provisions are also proposed, effective 1 April 2018 for the relevant assessment year.