Understanding Cash Transaction Limits for Business Expenses and Asset Purchases

What is the cash transaction limit for business expenses under Section 40A(3)? A: The cash transaction limit for business expenses under Section 40A(3) is ₹10,000 per day to a single person. Any amount exceeding this limit is generally not allowed as a tax-deductible expense. Q: Is there a higher limit for cash payments to transporters? A: Yes, there is a higher limit of ₹35,000 for cash payments made to transporters. This higher limit is to accommodate the higher expenses often associated with transportation services. Q: How does Section 43 affect the cost of assets purchased in cash? A: Under Section 43, if a payment of more than ₹10,000 is made in cash for acquiring an asset, this amount will be disregarded when determining the actual cost of the asset for depreciation purposes. Q: Why are these cash transaction limits in place? A: These cash transaction limits are in place to promote transparency, prevent tax evasion, and ensure that businesses maintain accurate and transparent financial records. Q: What should businesses do to ensure compliance with these regulations? A: Businesses should maintain detailed records of all transactions, stay informed about the regulations, and consult with tax experts or accountants to ensure compliance and optimize tax planning.

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