What is Rule 6DD of Income Tax Rules?

Rule 6DD of Income Tax Act,1962, specifies the circumstances under which payments exceeding ₹10,000 can be made in cash without attracting disallowance under Section 40A(3) of the Income Tax Act, 1961. Generally, this section disallows a business expense if the payment is made in cash and exceeds ₹10,000 (₹35,000 for payments made to transporters), promoting digital and traceable transactions.

However, Income Tax Rule 6DD provides exceptions to this rule, allowing certain cash transactions to be exempt from disallowance under specific conditions.

• Payments made in a place where there is no banking service available. Payments made to government organizations under specific conditions, such as tax payments or statutory duties, for which the payment method is prescribed.

• Payments made to a bank for the purpose of creating, renewing, or honoring a term deposit, overdraft, cash credit, or other loan.

• Payments made to an employee of the assessee or an heir of a deceased employee in connection with the retirement, termination, or death of the employee, provided such payments do not exceed ₹50,000.

• Payments for the purchase of agricultural or forest produce, animal husbandry products (including livestock, meat, milk, etc.), poultry, fish or fish products, horticulture, or apiculture products.

• Payments made on the day of closure of the business, on a bank holiday, and to the producer of agricultural produce in a village without banking facilities.

• Rule 6DD of income tax rules aims to accommodate genuine business needs where cash transactions are necessary due to practical constraints. It ensures that legitimate business expenses are not disallowed solely because they were made in cash, as long as they fall under the specified exceptions.

This rule provides relief to taxpayers in specific situations and helps maintain fairness in tax administration. However, it also underscores the emphasis on transparency and accountability in financial transactions.

This is all about 6DD of income tax act.

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Rule 6DD of Income Tax Rules in India provides exemptions from mandatory electronic payment requirements under certain circumstances. It outlines situations where taxpayers are allowed to make payments in cash beyond specified thresholds without attracting penalties or disallowances under the Income Tax Act.

 Moreover, the Income Tax Act's Rule 6DD states that cash payments of up to Rs. 10,000 can only be made in a single day.

What is 6DD of Income Tax Act?

Here is a breakdown of income tax rule on Rule 6DD:

The Income Tax Act, of 1961, mandates that certain payments exceeding specified thresholds should be made electronically or through banking channels to promote transparency and reduce tax evasion. However, Rule 6DD provides exceptions to this rule under specific conditions.

Rule 6DD lists various circumstances under which cash payments beyond the prescribed limits are allowed. These include payments made to:

• Rural areas where banking facilities are not readily available or accessible.

• Certain categories of payees such as agriculturists, producers of primary products, etc., where banking facilities are limited.

• Small-scale industrial undertakings for purchases of products.

• Payments for acquiring agricultural products, livestock, or goods from rural artisans.

• Payments for the purchase of products or services made in the course of export operations.

To qualify for exemption under Rule 6DD, certain conditions must be met. These typically include obtaining a declaration or certificate from the payee affirming their eligibility for cash payments, ensuring that the payments are genuine and directly related to the specified transactions, and maintaining proper documentation to support the transactions.

Taxpayers availing exemptions under Rule 6DD are required to maintain adequate documentation to substantiate the cash payments made and the eligibility criteria fulfilled.

This may include obtaining declarations or certificates from the payees and maintaining invoices, receipts, and other relevant records. Failure to comply with the provisions of Rule 6DD or to maintain necessary documentation may result in penalties or disallowances under the Income Tax Act.

Therefore, it's essential for taxpayers to adhere to the prescribed conditions and maintain proper records to avoid adverse consequences. This is all about Rule 6DD of Income Tax Rules.

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