Section 43B in Income Tax Act

Section 43B in Income Tax Act

This section in short, deals with certain types of payments and directs the taxpayer to claim such payments as an expense in the same assessment year when it was actually paid and not in the year in which the liability to pay such sum was incurred.

Types of Payment Under Section 43B where the Provisions Apply

If you follow a mercantile system of accounting, the payments stated below can be claimed on the due basis:

1. Tax – Any sum payable by the assessee by way of tax, duty, cess or fee and all other types of taxes paid to government by whatever name it is called under the law. This includes GST, customs duty or any other taxes paid. Interest paid on these taxes are also eligible for deduction.
2. Employer contribution – Any contribution made by the employer towards benefit of their employees and comes under the category of a provident fund, gratuity or superannuation fund. The employer must ensure that such a contribution is made before the due date of depositing these funds or before the due date of filing income tax returns.
3. Bonus or Commission – Any sum payable by the employer to the employee as bonus or commission as payment for the services rendered. This amount must be the real bonus or commission paid to employees and not given in the form of dividends payable to them as shareholders.
4. Interest Payable – Any amount payable as interest on loan borrowed from any public financial institution, state financial corporation or state industrial investment corporation in accordance with the terms and conditions under the agreement.
5. Interest Payable on Advance – Any amount payable as Interest on loans and advances from a scheduled bank in accordance with the conditions governing such a loan.
6. Any amount under leave encashment provided by an employer to his employees.

NOTE

• Employee contribution for provident fund must be paid within due date of its respective laws i.e PF act.
• Other expenses must be paid within due date of return filing under income tax act.

Exception – When Deductible on Accrual Basis

The taxpayer can claim deductions if they follow an accrual system of accounting based on certain conditions:

• If a taxpayer follows a mercantile system of accounting.
• If all expenses are paid on or before the due date for submission of ITR.
• The evidence of all such payments made must be submitted by the taxpayer while filing an ITR.