Cash disallowance exceptions (s. 36(4))

The principle. No disallowance under section 36(4), and no deemed business profit under section 36(5), arises where a payment or aggregate of payments to a person in a day exceeds ten thousand rupees and is made otherwise than by a specified banking or online mode (or an electronic mode under rule 48), in the following cases.

The cases (sub-rule 1).

• (a) Payments to the Reserve Bank of India; any banking company under section 5(c) of the Banking Regulation Act, 1949; the State Bank of India or its subsidiary banks; any co-operative bank or land mortgage bank; any primary agricultural credit society or primary credit society under section 56 of that Act; or the Life Insurance Corporation of India.
• (b) Payment to the Government where its rules require payment in legal tender.
• (c) Payment by letter of credit arrangement through a bank; mail or telegraphic transfer through a bank; book adjustment from one bank account to another; or a bill of exchange payable only to a bank.
• (d) Payment made by adjustment against a liability the payee owes for goods supplied or services rendered by the assessee to the payee.
• (e) Payment for purchase of agricultural or forest produce; produce of animal husbandry, dairy or poultry farming; fish or fish products; or products of horticulture or apiculture — made to the cultivator, grower or producer.
• (f) Payment for products made or processed without power in a cottage industry, made to the producer.
• (g) Payment in a village or town not served by any bank on the date of payment, to a person who ordinarily resides, or carries on business, profession or vocation, there.
• (h) Payment to an employee, or the employee's heir, on retirement, retrenchment, resignation, discharge or death, as gratuity, retrenchment compensation or a similar terminal benefit, where the aggregate payable to that person does not exceed fifty thousand rupees.
• (i) Salary paid to an employee after deducting tax under section 392, where the employee is temporarily posted for a continuous period of fifteen days or more at a place other than the normal place of duty or on a ship, and has no bank account there.
• (j) Payment to an agent who must pay cash for goods or services on the principal's behalf.
• (k) Payment by an authorised dealer or money changer against purchase of foreign currency or travellers cheques in the normal course of business.

Definitions (sub-rule 2). "Bank" in clauses (c) and (g) covers the institutions in clause (a)(i) to (iv) and any bank, incorporated or not, established outside India that is not a banking company. "Authorised dealer" or "money changer" in clause (k) means a person authorised to deal in foreign currency or exchange under any law in force.