Column: Legal

LEGAL
Going By The Book

At the hearing of the suit, you will need to prove the deficit in your retirement compensation on the basis of calculation adopted in the VRS.

By Diljeet Titus, Titus & Co. Advocates

Are there any restrictions under the Income Tax laws on making cash payments beyond a ceiling?

Section 40A(3) of the Income Tax Act, 1961, generally restricts an assessee from making cash payments in excess of Rs 20,000 per individual payee in an assessment year. This means that an assessee can make cash payments to an individual payee in multiple transactions, if the total cash payment to that individual payee does not exceed Rs 20,000 in an assessment year. If an assessee makes payment exceeding Rs 20,000 to an individual payee in an assessment year, then such expenditure is not allowed to be deducted under the head of ''profits and gains of business or profession''. However, cash payments in excess of Rs 20,000 are allowed under Section 40A(3) of the Income Tax Act, 1961, read with Rule 6dd of the Income Tax Rules, 1962, in several cases, including where (i) cash payment is made to the RBI, SBI, IFCI, ICICI and the UTI, (ii) payments are statutorily required to be made to the government in legal tender, (iii) payments are made by telegraphic transfer through a bank, or by a bill of exchange made payable only to a bank, (iv) payments are made by way of adjustment against the amount of any liability incurred by a payee for any goods supplied or services rendered by the assessee to such payee, (v) payments are made to a cultivator, grower or producer for the purchase of agricultural or forest produce, (vi) payments are made to any person who ordinarily resides or carries on business, profession or vocation in a village or town, which, on the date of the payment, is not served by any bank, (vii) payments are made by way of gratuity, retrenchment compensation or similar terminal benefit to an employee of the assessee or the heirs of any such employee or in connection with retrenchment, resignation, discharge or death of such employee, if the income chargeable under the head 'Salaries' of the employee in respect of the financial year, in which such retirement, resignation, discharge, or death took place or the immediately preceding financial year, did not exceed Rs 7,500, (viii) payment is made by an assessee by way of salary to his employee after deducting the income tax from salary in accordance with the provisions of Section 192 of the Income Tax Act, 1961, if such employee is temporarily posted for a continuous period of 15 days or more in a place other than his normal place of duty, and does not maintain any account in any bank at such place, and (ix) payments were required to be made on a day on which banks were closed either on account of holiday or strike.

After 21 years of service, I voluntarily retired from employment in February 1999 under a voluntary retirement scheme (VRS). I have now come to know that the compensation paid to me on retirement was less than what was due to me under the VRS. How can I recover my deficit compensation?

If the deficit in payment is a result of a bonafide mistake in the calculation of your retirement compensation under the VRS, then irrespective of whether you have signed a no-claims/release letter at your retirement, you should, in the first instance, write to your former employer, detailing the mistake made in calculating your retirement compensation and demanding payment of the deficit amount. If your former employer denies or refuses to pay the deficit retirement compensation, you can file a suit against your employer in the court. At the hearing of the suit, you will need to prove to the court's satisfaction the deficit in your retirement compensation on the basis of the calculation adopted in the VRS and that you had signed a no-claims/release letter under a bonafide mistake that the calculations were correct. However, any action on your part should be taken before the expiry of three years from the date of your retirement to avoid your claim being time barred under the Limitation Act, 1963.

The view expressed here should not be construed as legal opinion and is for reference only. Business Today and/or the author will not be responsible for any decision taken by readers on the basis of these views. Please send in your queries to legal.bt@intoday.com or Going By The Book, c/o Business Today, F-26, Connaught Place, New Delhi-1

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