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Rule - 6DD, Income-tax Rules

57 [ 58 [ 58a [Cases and circumstances in which a payment or aggregate of payments exceeding ten
thousand rupees may be made to a person in a day, otherwise than by an account payee cheque
drawn on a bank or account payee bank draft or use of electronic clearing system through a bank
account or through such other electronic mode as prescribed in rule 6ABBA.]
6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be
deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A
where a payment59 or aggregate of payments made to a person in a day, otherwise than by an account
payee cheque drawn on a bank or account 59a[account payee bank draft or use of electronic clearing
system through a bank account or through such other electronic mode as prescribed under rule 6ABBA,
exceeds ten thousand rupees]60 in the cases and circumstances specified hereunder, namely :—
61(a) where the payment is made to—
(i) the Reserve Bank of India or any banking company62 as defined in clause (c) of
section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii) the State Bank of India or any subsidiary bank63 as defined in section 2 of the State
Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);
(iii) any co-operative bank or land mortgage bank;
(iv) any primary agricultural credit society or any primary credit society as defined under
section 56 of the Banking Regulation Act, 1949 (10 of 1949);
(v) the Life Insurance Corporation of India established under section 3 of the Life
Insurance Corporation Act, 1956 (31 of 1956);
64(b) where the payment is made to the Government and, under the rules framed by it, such payment
is required to be made in legal tender64a;
(c) where the payment is made by—
(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or any
other bank;
(iv) a bill of exchange made payable only to a bank;
(v) to (vii) 64aa [ *** ]
Explanation.—For the purposes of this clause and clause (g), the term “bank” means any bank,
banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any
bank [not being a banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside
India;
66(d) where the payment is made by way of adjustment against the amount of any liability incurred

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by the payee for any goods supplied or services rendered by the assessee to such payee;
67(e) where the payment is made for the purchase of—

(i) agricultural or forest produce; or

(ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy
or poultry farming; or
(iii) fish or fish products68; or
(iv) the products of horticulture or apiculture,
to the cultivator, grower or producer of such articles, produce or products;
(f) where the payment is made for the purchase of the products manufactured or processed
without the aid of power in a cottage industry, to the producer of such products;
69(g) where the payment is made in a village or town, which on the date of such payment is not
served by any bank, to any person who ordinarily resides, or is carrying on any business,
profession or vocation, in any such village or town;
(h) where any payment is made to an employee of the assessee or the heir of any such employee,
on or in connection with the retirement, retrenchment, resignation, discharge or death of such
employee, on account of gratuity, retrenchment compensation or similar terminal benefit and
the aggregate of such sums payable to the employee or his heir does not exceed fifty thousand
rupees;
(i) where the 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 Act, and
when such employee—
(i) is temporarily posted for a continuous period of fifteen days or more in a place other
than his normal place of duty or on a ship; and
(ii) does not maintain any account in any bank at such place or ship;
(j) 70 [ *** ]
(k) where the payment is made by any person to his agent71 who is required to make payment in
cash for goods or services on behalf of such person;
(l) where the payment is made by an authorised dealer or a money changer against purchase of
foreign currency or travellers cheques in the normal course of his business.
Explanation.—For the purposes of this clause, the expressions “authorised dealer” or “money
changer” means a person authorised as an authorised dealer or a money changer to deal in
foreign currency or foreign exchange under any law for the time being in force.]

57. Substituted by the IT (Seventh Amdt.) Rules, 2008, with effect from assessment year 2009-10.
Prior to its substitution, rule 6DD as amended by the IT (Eighth Amdt.) Rules, 2007, with effect
from assessment year 2008-09, IT (Amdt.) Rules, 1969, w.e.f. 1-4-1969, IT (Fourth Amdt.)
Rules, 1970, w.e.f. 1-4-1970, IT (Fifth Amdt.) Rules, 1989, w.r.e.f. 1-4-1988/w.e.f. 18-5-1989, IT
(Fourteenth Amdt.) Rules, 1995, w.e.f. 25-7-1995, IT (Twenty-first Amdt.) Rules, 1995, w.e.f. 1-
12-1995, IT (Thirty-first Amdt.) Rules, 1999, w.r.e.f. 1-4-1997, IT (Sixteenth Amdt.) Rules,
2000, w.r.e.f. 25-7-1995 and IT (Thirteenth Amdt.) Rules, 2006, w.e.f. 9-11-2006.

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58. Substituted for "Cases and circumstances in which a payment or aggregate of payments
exceeding twenty thousand rupees may be made to a person in a day, otherwise than by an
account payee cheque drawn on a bank or account payee bank draft" by Income-tax (3rd
Amendment) Rules, 2020, w.e.f. 29-1-2020.
58a. Rule 6DD is constitutionally valid - Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667
(SC)/Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (AP). Section 40A(3) is not in violation of
article 265 of the Constitution - ITO v. Kenaram Saha & Subhash Saha [2009] 116 ITD 1 (Kol. -
Trib.) (SB). The rule will apply even for computation of income under 'other sources'. The term
'bank' will include indigenous money-lenders' banks provided they are specifically notified under
section 49A of the Banking Regulation Act - Circular No. 6P, dated 6-7-1968. Section 40A(3)
can be invoked only if the expenditure has been claimed as a deduction by the assessee - Saral
Motors & General Finance Ltd. v. Asstt. CIT [2009] 121 ITD 50 (Delhi - Trib.). Addition cannot
be made simultaneously on same amount by applying provisions of section 40A(3) as well as
section 40(a)(ia) - Ghosh & Chakraborty Transport v. ITO [2013] 34 taxmann.com 35 (Kol. -
Trib.).
59. The term ‘expenditure’ refers to any payment made by assessee, and is not confined to
expenditure deductible under section 37 - Sajowanlal Jaiswal v. CIT [1976] 103 ITR 706 (Ori.).
It will cover payments for acquisition of stock-in-trade or raw materials - Attar Singh Gurmukh
Singh v. ITO [1997] 191 ITR 667 (SC). Even advances made for purchase of goods are covered -
Kejriwal Iron Stores v. CIT [1988] 169 ITR 12 (Raj.). Payments by film distributor for
acquisition of distribution rights are covered - Akash Films v. CIT [1991] 190 ITR 32 (Kar.).
However, payments representing loans or their repayments are not covered - Press Note, dated 2-
5-1969/Letter F. No. 1(22)/69-TPL (Pt.), dated 18-4-1969. For details, see Taxmann’s Master
Guide to Income-tax Rules.
59a. Substituted for "account payee bank draft, exceeds twenty thousand rupees" by the Income-tax
(3rd Amendment) Rules, 2020, w.e.f. 29-1-2020.
60. Where payment is partly in cash and partly by cheque, ceiling will apply to cash portion only -
H.A. Nek Mohd. & Sons v. CIT [1982] 135 ITR 501 (All.). For details, see Taxmann’s Master
Guide to Income-tax Rules.
61. Rule 6DD(a) applies only to payments to institutions referred to therein and not to payments
made in any party’s account maintained by institutions referred to therein - K. Abdu & Co. v. ITO
[2008] 170 Taxman 297 (Ker.).
62. Clause (c) of section 5 of the Banking Regulation Act, 1949 defines “banking company” as
follows :
‘(c) “banking company” means any company which transacts the business of banking in India.
Explanation : Any company which is engaged in the manufacture of goods or carries on
any trade and which accepts deposits of money from the public merely for the purpose of
financing its business as such manufacturer or trader shall not be deemed to transact the
business of banking within the meaning of this clause.’
63. Clauses (j) and (k) of section 2 of the State Bank of India (Subsidiary Banks) Act, 1959, define
“State Bank” and “subsidiary bank”, respectively, as follows :
‘(j) “State Bank” means the State Bank of India constituted under the State Bank of India Act,
1955 (23 of 1955) ;
(k) “subsidiary bank” means any new bank and includes the Hyderabad Bank and the
Saurashtra Bank ;’
64. Payment of freight charges/booking of wagons to railways, and payment of sales tax/excise duty
are covered by this exception—Circular No. 34, dated 5-3-1970. For details, see Taxmann’s
Master Guide to Income-tax Rules.
64a. ‘Legal tender’ as occurring in rule 6DD(b) means the currency of a State which is to be used as

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money. - Devendrappa M. Kalal v. ITO [2012] 23 taxmann.com 404/53 SOT 23 (URO) (Bang. -
Trib.). Cash payment made by assessee to ‘Railway’ is covered in exceptions provided in clause
(b) of rule 6DD and provisions of section 40A(3) are not applicable - Devendrappa M. Kalal v.
ITO [2012] 23 taxmann.com 404/53 SOT 23 (URO) (Bang. - Trib.).
64aa. Sub-clauses (v), (vi) and (vii) omitted by Income-tax (3rd Amendment) Rules, 2020, w.e.f. 29-
1-2020. Prior to its omission said clauses (v), (vi) and (vii) read as under:
"(v) the use of electronic clearing system through a bank account;
(vi) a credit card;
(vii) a debit card."
66. Exception will not apply in cases where book adjustments were not made directly in the accounts
of the supplier—CIT v. Kishan Chand Maheswari Dass [1980] 121 ITR 232 (Punj. & Har.). For
details, see Taxmann’s Master Guide to Income-tax Rules.
67. The words ‘cultivator, grower or producer’ occurring at the end of this sub-rule qualify the words
occurring in all the preceding four sub-clauses, and not merely sub-clause (iv)—CIT v. Pehlaj
Rai Daryanmal [1991] 190 ITR 242 (All.). Exclusion to operate even if product has undergone
any change - Press Note dated 2-5-1969. Payments to middlemen are not covered - Letter F.No.
1/22/69-TPL (Pt.), dated 18-4-1969. Exception will not be available on purchase of hides and
skins from a person who is not proved to be the producer of the goods—Ideal Tannery v. CIT
[1979] 117 ITR 34 (All.). To satisfy test of rule 6DD(e), not only payment should be made for
purchase or produce of animal husbandry but payment is to be made to producer of such produce
- ITO v. Kenaram Saha & Subhash Saha [2009] 116 ITD 1 (Kol. - Trib.)(SB). Rule 6DD(e)
nowhere says that such producer must belong to rural areas where banking facility is not
available - Hybro Foods (P.) Ltd. v. ITO [2008] 115 ITD 73/25 SOT 143 (Mum.-Trib.). Purchase
of Dhania (an agricultural produce) is eligible for the exception—Kanti Lal Purshottam & Co. v.
CIT [1985] 155 ITR 519 (Raj.). Hoshiarpur District Co-operative Milk Producers Union cannot
be considered to be producer of milk and, therefore, payment made by assessee to Union would
not come under rule 6DD(f) - Smt. Chanchal Dogra v. ITO [2012] 247 CTR (HP) 616. Payment
made by assessee, manufacturer of milk products, to milk producer through an agent in cash for
purchase of milk would be covered by exception contained in clause (f) [now clause (g)] of rule
6DD - Dy./ Asstt. CIT v. Heritage Foods (India) Ltd. [2012] 25 taxmann.com 209/53 SOT 204
(URO) (Hyd. - Trib.). Exception will not apply to payments made to ‘arhatiyas’—Circular No.
34, dated 5-3-1970. The expression “the produce of animal husbandry” used under rule 6DD(e)
(ii) would include “livestock and meat”; further exception will not be available on the payment
for the purchase of livestock, meat, hides and skins from a person who is not proved to be the
producer of these goods and is only a trader, broker or any other middleman by whatever name
called - Circular No. 4/2006, dated 29-3-2006. Any person, by whatever name called, who buys
animals from the farmers, slaughters them and then sells the raw meat carcasses to the meat
processing factories or to the traders/retail outlets would be considered as producer of livestock
and meat. The benefit of rule 6DD shall be available to him subject to furnishing of prescribed
document - Circular No. 8/2006, dated 6-10-2006. See also Press Release, dated 2-5-1969. For
details, see Taxmann’s Master Guide to Income-tax Rules.
68. Circular No. 10/2008, dated 5-12-2008, provides as under :
- The expression ‘fish or fish products’ used in rule 6DD(e)(iii) [now rule 6DD(f)(iii)] would
include ‘other marine products such as shrimp, prawn, cuttlefish, squid, crab, lobster, etc.’
- The ‘producers’ of ‘fish or fish products’ for the purpose of rule 6DD(e) would include,
besides the fishermen, any headman of fishermen, who sorts the catch of fish brought by
fishermen from the sea, at the sea-shore itself and then sells the fish or fish products to
traders, exporters, etc.
- Exception provided under rule 6DD(e)(iii) will not be available on the payment for the

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purchase of fish or fish products from a person who is not proved to be a ‘producer’ of
these goods and is only a trader, broker or any other middleman, by whatever name called.
‘Processed fish’ is covered under ‘fish or fish products’ - CIT v. Interseas, Sea Food Exporters
[2010] 188 Taxman 343 (Ker.).
69. If place where recipient resides or carries on business is having banking facility, conditions of
rule 6DD(g) would not be satisfied merely because recipient has not opened his bank account -
ITO v. Kenaram Saha & Subhash Saha [2009] 116 ITD 1 (Kol. - Trib.)(SB).
70. Clauses (j) omitted by Income-tax (3rd Amendment) Rules, 2020, w.e.f. 29-1-2020. Prior to its
omission said clauses (j) read as under:
"(j) where the payment was required to be made on a day on which the banks were closed either
on account of holiday or strike;"
71. Employee is not ‘agent’ - Dy. CIT v. Vijay Kumar Ramesh Chand & Co. [2007] 108 ITD 626
(Pune - Trib.). For details, see Taxmann’s Master Guide to Income-tax Rules.

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