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CA Intermediate · Taxation · Profits and Gains of Business or Profession

Rohit Traders, a proprietorship, paid Rs 28,000 in cash on a single day to a transporter for goods carriage in tax year 2026-27. The payment was made to a person to whom the payment was due for transport services, and the amount was not otherwise disallowed. Applying the cash expenditure rule for business payments (limit Rs 10,000 per person per day, with a higher limit of Rs 35,000 for payments to transport operators for plying, hiring or leasing goods carriages), what is the disallowance?

The disallowance is nil. Cash payments to a goods transport operator are tested against the higher limit of Rs 35,000 per day rather than Rs 10,000. Since Rs 28,000 is below that limit, the whole expenditure remains deductible.

  1. ARs 28,000
  2. BRs 18,000
  3. CRs 8,000
  4. DNilCorrect

Explanation

The rule disallows cash payments above Rs 10,000 per day to one person, but for payments to a transport operator for goods carriages the limit is Rs 35,000. Rs 28,000 is below Rs 35,000, so nothing is disallowed. Rs 28,000 is wrong because it applies the general limit as if the payment were wholly disallowed; Rs 18,000 wrongly deducts the general limit from the payment.

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