Income Tax Query
 

CASH PAYMENTS ABOVE RS.20000 (SECTION 40A(3)

 

Exceptions to Section 40A(3): Rule 6DD

     

i.              Cases and Circumstances in which payment above Rs.20000 can be made in cash:

As per Rule 6DD, payment above Rs.20000 in a day can be made to a single person under the following circumstances:

   
 a.    Where a payment is made to:

(i)            The Reserve Bank of India or any banking company as defined in Section 5(c) of the Banking Regulation Act, 1949.

(ii)          The State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959.

(iii)         Any Co-Operative Bank or Land Mortgage Bank.

(iv)         Any Primary Agricultural Credit Society or any Primary Credit Society as defined under section 56 of the Banking Regulation Act, 1949.

(v)          The Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956.

b.    Where the payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender.

c.    Where the payment is made by:

(i)            Any Letter of Credit arrangements through a bank

(ii)          A mail or telegraphic transfer through a bank

(iii)         A book adjustment from any account in a bank to any other account in that or any other bank.

(iv)         A bill of exchange made payable only to a bank.

(v)          The use of electronic clearing system through a bank account.

(vi)         A credit card

(vii)        A debit card.

d.    Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.

e.    Where the payment is made for the purchase of :

(i)            Agricultural or forest produce; or

(ii)          The produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or

(iii)         Fish or fish products; or

(iv)         The products of horticulture or apiculture,

To the cultivator, grower or producer of such articles, produce or products;

f.     Where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products.

g.    Where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town

h.    Where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand rupees.

i.      Where the payment is made by an assessee by way of salary to his employee after deducting the income tax from salary in accordance with the provisions of section 192 of the Act, and when such employee:

(i)            Is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and

(ii)          Does not maintain any account in any bank at such place or ship

j.      Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.

k.    Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.

l.      Where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheque in the normal course of his business.

It is clarified that for the purposes of clause (l), the expression “authorised dealer” or “money changer” means a person authorised as authorised dealer or money changer to deal in foreign currency or foreign exchange under any law for the time being in force.

  

It is clarified that for the purposes of clause (c) and clause (g) above, the term “bank” means any bank, banking company or society referred to in sub clauses (i) to (iv) of clause (a) of the Banking Regulation Act, 1949 and includes any bank (not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949), whether incorporated or not, which is established outside India.

 

ii.            Crossed cheque versus account payee cheque--Section 123 of the Negotiable Instruments Act, 1881 provides that where a cheque bears across its face an addition of the words "and company" or any abbreviation thereof, between two parallel transverse lines, or of two parallel transverse lines, simply, either with or without the words "not negotiable", that addition shall be deemed to be a crossing and the cheque shall be deemed to be crossed generally.

 

Section 124 of the said Act provides that where cheque bears across its Ace an addition of the name of a banker, either with or without the words "not negotiable", that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.

 

Section 126 of the said Act provides that where a cheque is crossed generally, the banker, on whom it is drawn shall not pay it otherwise than to a banker. It also provides that where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent, for collection.

 

To conclude, a crossed cheque can be paid to anybody through banking channels but an account payee cheque can be paid only through the account to whom it is named.

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