Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
Cash paid to one supplier on one day crosses ₹10,000 and the expense risks disallowance.
Add up all cash paid to each person per day and flag any total above ₹10,000, or ₹35,000 for goods-carriage hire.
A cash book with payee name and date, plus a daily total per payee and a Rule 6DD exception note where one is claimed.
A clean list of cash payments within the limit, or flagged payments with the exception relied on.
If your business pays one person more than ₹10,000 in cash in a single day, the expense can be disallowed for tax purposes under Section 40A(3) of the Income-tax Act 1961. For payments to hire, lease or ply goods carriages, the limit is ₹35,000. Pay by account-payee cheque, bank transfer or UPI and the problem does not arise, unless the payment falls under a narrow exception.
These are the 1961 Act figures that apply to FY 2025-26. The Income-tax Act 2025, in force from 1 April 2026, carries a similar rule under a new section number, so check the current reference with your CA.
Is the limit per bill, per day or per supplier?
It is tested per person, per day. The tax law adds up every cash payment to the same person on the same day. Three separate ₹6,000 cash payments to one supplier on 10 October total ₹18,000, which is above ₹10,000, even though each bill is small. Splitting a bill does not help.
Which payment modes count as cash?
| Payment mode | Counts as cash? | Risk |
|---|---|---|
| Cash | Yes | Disallowed above ₹10,000 a day per person |
| Bearer or self cheque | Yes | Treated like cash |
| Account-payee cheque or draft | No | Safe |
| UPI, NEFT, RTGS, IMPS, cards | No | Safe, and easy to trace in the bank statement |
| Book adjustment (set-off) | Generally no | Listed as an exception in Rule 6DD; keep the working |
Which payments are exempt?
Rule 6DD lists narrow exceptions. Examples include payments to banks, payments of government dues, payments in a village with no banking facility on that day, and payments on a day when banks were closed because of a holiday or strike. The list is short and specific. Read the exact wording before relying on one, and note the exception in the cash book against the entry.
Worked example: what ₹12,000 in cash costs
A company pays a packing-material supplier ₹12,000 in cash on one day.
- The whole ₹12,000 is disallowed, not just the ₹2,000 above the limit.
- At an effective company tax rate of 25.17%, the extra tax is ₹12,000 × 25.17% = ₹3,020.40, about ₹3,020.
- If the same ₹12,000 is paid by UPI, the full amount is allowed and the extra tax is ₹0.
So the cash payment costs roughly 25% more than the same payment made electronically.
How does the tax auditor check this?
The auditor reads the cash book and the bank statement and lists cash payments above the limit. In Form 3CD, the tax audit statement, there is a clause for payments that attract this disallowance. A practical routine for the accounts team:
- Export the cash book for the month.
- Group payments by payee and date.
- Flag any day where a payee’s total is above ₹10,000 (or ₹35,000 for transporters).
- For each flag, either note the Rule 6DD exception or treat the expense as disallowed in the tax working.
On the receiving side, separate rules limit how much cash you may accept, including the ₹2 lakh ceiling under Section 269ST. Those are covered in our article on cash receipts.
What to read next
- Next step: Tax Audit Form 3CD reconciliation items, including how cash payments are reported.
- Why can I not accept cash above ₹20,000 from a customer.
- What is Section 43B.
- Related: account reconciliation software for India.
TransactIG matches bank statement lines to your books, with an exception queue for anything unmatched and audit-ready exports, so electronic supplier payments are easy to evidence.