Cash sales of agriculture produce exempted by CBDT

By | 4th November 2017

The Central Board of Direct Taxes (CBDT) on Friday has provided clarifications regarding applicability of Income Tax provisions to the cultivators of agriculture produce. Sections 40A(3) and section 269ST of the Income Tax Act put cap over cash transactions. CBDT by this circular has clarified about exemptions provided to the cultivators of agriculture produce.

Representations were made by many stakeholders regarding cash sales by cultivators to traders. After looking into the representations, CBDT clarified that as per Rule 6DD, payments for purchase of agricultural produce to the cultivators are exempted from the applicability of section 40A(3). Hence, no disallowance under section 40A (3) can be made upon sale agricultural produce by the cultivator to the trader.

Further, it clarified that cash sale of an amount of Rs. 2 lakh or more by a cultivator of agricultural produce is prohibited under section 269ST of the Act.

Further more, it clarified that provisions for quoting PAN do not apply to the cash sale transactions of INR 2 lacs or less.

Therefore, it has been clarified by the CBDT that cash sale of the agricultural produce by its cultivator to the trader for an amount less than Rs 2 Lakh WILL NOT:-
a) result in any disallowance of expenditure under section 40A (3) of the Act in the case of trader.
b) attract prohibition under section 269ST of the Act in the case of the cultivator; and
c) require the cultivator to quote his PAN.

CBDT circular in this regard is provided below:

Clarification on Cash sale of agricultural produce by cultivators

Relevant sections are provided below for ready reference:

Section 40A(3): Expenses or payments not deductible in certain circumstances.

Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.

Section 269ST: Mode of undertaking transactions.

No person shall receive an amount of two lakh rupees or more—
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.

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