Digital Payments by Corporate Sector

Digital Payments by Corporate Sector

Digital Payments by Corporate Sector, Amendment in Section 21 of the Ordinance

Digital Payments by Corporate Sector

To improve documentation, a new clause (la) has been inserted in section 21 of the Ordinance. Previously payments under a single head account exceeding two hundred and fifty thousand rupees, made by any taxpayer were required to be made through crossed cheque or crossed baking instruments including digital payments.

Through this amendment, payments made by a company under a single head of account exceeding two hundred and fifty thousand rupees other than by digital means from business bank account of the taxpayer notified to the Commissioner under section 114A of the Ordinance shall not be admissible as deductions.

However, certain expenditures on account of utility bills, freight charges, travel fare, and payment of taxes and fines would continue to be admissible even though paid in cash or via traditional banking instruments.

The purpose behind this legislative enactment is to encourage digital payments and discourage traditional mode of transactions by the corporate sector in the first phase. However, owing to lack of total digital readiness by some corporate taxpayers, the corporate taxpayers are allowed to switch to this mode w.e.f. 01.11.2021. In the intervening period they may use digital payments or continue with the existing procedure of making payments by a ), crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer.

Payment of Salary via Digital Mode

Currently, any salary paid or payable exceeding twenty-five thousand rupees per month has to be made through cross cheque or direct transfer of funds to the employee’s bank account under clause (m) of section 21 of the Ordinance. In order to bring this provision in conformity with newly inserted clause (la) ibid, in case of payments against salary in excess of twenty-five thousand rupees per month, the mode of digital payment has been added to the available modes referred to above.

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