## Payments Made in Cash — Sections 40A(3) and 40A(3A)

### Section 40A(3) — Current-year cash expenditure

An expenditure is disallowed if a payment exceeding ₹10,000 to a person in a single day is made otherwise than through:

Account-payee cheque
Account-payee bank draft
Prescribed electronic modes — Credit/Debit card, Net Banking, IMPS, UPI, RTGS, NEFT, BHIM/Aadhaar.

### Section 40A(3A) — Subsequent-year payment of a past liability

If an expenditure was allowed on accrual in an earlier year, and is later paid in a subsequent year otherwise than through the prescribed modes in a sum exceeding ₹10,000, that payment is deemed to be income of the subsequent previous year.

### Enhanced limit for transporters

The ₹10,000 limit is raised to ₹35,000 where payment is made to a transport operator for plying, hiring, or leasing goods carriages.

### Scope — only revenue expenditure (Sections 30 to 37)

The disallowance applies only to payments in the nature of expenditure covered by Sections 30–37. Therefore NOT covered:

Repayment of loans
Advance payments made by commission agents to a principal for goods received for sale on commission.

### Exemptions — Rule 6DD (cash payment allowed despite the limit)

Payments to RBI, any bank, PACCS or PCS, and LIC.
Payments to Government.
Payment through Letter of Credit, Telegraphic Transfer (T.T.), book adjustment, or a bill of exchange payable only at banks.
Payment by book adjustment against a liability.
Payment to a cultivator/producer for agricultural produce, animal husbandry/dairy, poultry, fish or fish products, horticulture, apiculture. (Traders in fish products are NOT covered.)
Purchase of products manufactured/processed without the aid of power in a cottage industry.
Payment in a village/town on a bank holiday to a person who ordinarily resides or carries on business there.
Retirement/retrenchment benefits to employees where the aggregate does not exceed ₹50,000.
Salary to an employee temporarily posted ≥15 days at another place/ship who has no bank account there.
Payments to agents who must pay cash for goods/services on the principal's behalf.
Payment by an authorised dealer/money changer for purchase of foreign currency or travellers' cheques.

Worked example

### Example 1

Example — single-day aggregation. A trader pays a supplier ₹6,000 in cash in the morning and ₹5,000 in cash in the evening of the same day for the same expense (total ₹11,000). Since aggregate cash to one person in a day exceeds ₹10,000, the whole ₹11,000 is disallowed.

### Example 2

Example — transporter limit. A business pays ₹30,000 cash to a goods-carriage operator for transport. As the ₹35,000 limit applies to transporters, the payment is allowed.

### Example 3

Example — Section 40A(3A). An expense of ₹50,000 was claimed on accrual in FY 2023-24. It is paid in cash in FY 2024-25. The ₹50,000 is deemed to be income of FY 2024-25.

⚠️ Common exam mistakes

Testing each individual payment against ₹10,000 instead of aggregating all cash payments to one person in a single day.
Applying the ₹35,000 transporter limit to non-transport payments.
Treating loan repayments or commission agents' advances as disallowed — they are outside Sections 30–37.
Assuming a bearer/crossed cheque qualifies — only account-payee cheque/draft or prescribed electronic modes are safe.
Forgetting that fish-product traders are excluded from the agricultural-produce exemption.

Reference: Sections 40A(3) & 40A(3A); Rule 6DD — Income-tax Act, 1961 / Income-tax Rules, 1962

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Disallowance of cash payments exceeding ₹10,000 – Sections 40A(3) and 40A(3A) and Rule 6DD exceptions

Worked example

⚠️ Common exam mistakes