As per income tax ordinance, 1984, salary up-to Rs. 15,000 can be paid in cash. Any amount, for payment of salary, exceeding 15,000 shall must be paid through crossed cheque or direct bank transfer.
If a business pays salary in cash to any employee, exceeding the prescribed limit then such expense shall be considered as inadmissible expense. Inadmissible expense means an expense while calculating profit of business is not deducted from the total revenue (sales).
As per clause “m” of sub section 1of section 21 of Income Tax Ordinance,2001
No deduction shall be allowed in computing the income of a person under the head ―Income from Business if salary paid or payable exceeding [fifteen] thousand rupees per month other than by a crossed cheque or direct transfer of funds to the employee‘s bank account .
It means if salary of an employee is exceeding Rs.15,000 that should must paid via crossed cheque or or direct transfer of funds to the employee‘s bank account if a business failed to do so then salaries paid in cash shall not be considered as expense of a business.
In normal practice salary account of all employees are open in a same branch of a bank and salary is transferred to them through a cheque or company /business bank account, via transfer instructions.
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