Section 40A(3) is an important section of the Income Tax Act that ensures there is proof of payment made which helps to reduce tax evasion and increases accountability. Payment can only be made through demand draft or cheques.
This section of the Income Tax act is an overriding section that prohibits deduction of payment of ₹20,000 and above in a single day. The only modes of payment allowed are cheque or demand drafts. If the payment made is in relation to hiring, plying or leasing goods carriages, the limit on deduction for such payments will be ₹35,000.
The subsection 40A(3)(b) contains provisions for deeming a payment received as profits if the expenditure was incurred in a specific assessment year and payment was received in the subsequent year exceeding ₹20,000. If such a payment has been received in any other modes other than account payee cheque or account payee draft, it cannot be shown as a deduction.
This section of the Income Tax act ensures accountability and reduces the chances of tax evasion since payments are only realized through account payee cheques and therefore, there is a definite record of the payment made. This section only deals with payment received for the expenditure and procurement of capital assets are not covered under this section.
The rule 6DD deals with provisions made to create exceptions to Section 40A(3).
The following category of payments exceeding ₹20,000 are allowed to made in a mode other than account payee cheque or bank draft.
Credit Card:
Credit Score:
Personal Loan:
Home Loan:
Fixed Deposit:
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