Chartered Accountant · ICAI M.No. 153926 · FRN 136869W · Reviewed on 9 October 2026
How the 5% test actually reads
Two independent conditions for the ₹10-crore limit: aggregate cash receipts ≤ 5% of all receipts, AND aggregate cash payments ≤ 5% of all payments — tested on the year’s gross flows, not profit. Fail either side by a rupee and you are back at the ₹1-crore threshold. The deeming clause then adds teeth: a cheque or draft that is not account-payee is treated as cash for this test.
What it means in practice
A digital-first trader at ₹6 crore turnover with UPI/bank collections and one ₹40-lakh cash purchase season has a problem — that single stream can breach the payments leg. Watch the quiet cash: staff reimbursements paid in cash, freight paid to transporters, scrap sales collected in cash. The test is annual, so a December slip cannot be repaired in March.
Evidence beats assertion
The tax auditor certifies these percentages in Form 3CD, so the working must exist: a receipts register and payments register split by mode, bank statements mapped, and account-payee discipline on every instrument. Build the ledger tags on day one and the 5% computation falls out in minutes each year. It is a standard working paper in our tax-audit practice.