Taxation

with focus on tax education

Cash Payment on Purchase of Prepaid Cards
Wednesday, March 24, 2010

Section 21(I) states that;

Any expenditure for a transaction, paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees, made other than by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer would be inadmissible:

Provided that online transfer of payment from the business account of the payer to the business account of payee as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective payer and the payee:

Provided further that this clause shall not apply in the case of

(a) expenditures not exceeding ten thousand rupees;

(b) expenditures on account of

utility bills;
freight charges;
travel fare;
postage; and
payment of taxes, duties, fee, fines or any other statutory obligation;

In the context of above provision of income tax while making payment of Rs.200,000/- to a single party you are required to make payment through cross cheque and further witholding tax is also required to be deducted from it subject to non-availability of exemption certificate, if any.

However we can make plea that its impossible to purchase prepaid cards from one vendor therefore you have to make payments in cash as there are a lot of vendors involved.

Labels: Taxation