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Section 43B – Deductions Allowed only on Actual Payment

U.C Date : 26 Apr 2016


Section 43B disallows the sum which are not paid in the financial year as well as not paid before due date of filing income tax return.

The following sum are allowed in the year in which they are incurred, only if they are paid before the due date of furnishing the return of income under section 139(1) of that year.

  1. Any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force. (See Note 1)
  2. any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees
  3. any bonus or commission to employees. If commission is payable to an agent, then this section is not applicable.
  4. any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing (See Note 2)
  5. any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances (See Note 2)
  6. any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee (Leave Encashment)
  7. Payment made to Indian Railways for use of Railway Assets (From financial year 2016-17)

It they are paid after due date of furnishing return of that year, then such expenditure is allowed in the year in which it is actually paid.

Note 1 – “Any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. For eg Vat for the month of March is payable by 14th April. Since this liability is incurred in month of march only, this amount is covered under this section and will be disallowed if not paid till the due date of furnishing return.
If sales tax payment is deferred under a scheme framed by the government, then it is considered that the amount of sales tax has been paid and therefore allowed in the year in which incurred.

Note 2 – In case of (d) & (e), if interest is not actually paid and converted into loan or advance, then it is not treated as actually paid and therefore not allowed as deduction in the year to which it relates. Such interest is allowed in the year in which such converted loan is actually paid. [Circular no. 7/2006]

Case Laws

Dis-allowance under section 43B can be made even when the income is filled on presumptive basis. (Good Luck kinetic v/s ITO 2013 Goa)

Bare Act for Sec 43B

Bare Act for Sec 43B

Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

(a)  any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force

(b)  any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees,

(c)  any sum referred to in clause (ii) of sub-section (1) of section 36

(d)  any sum payable by the assessee as interest on any loan or borrowing from any public financial institution [or a State financial corporation or a State industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing

(e)  any sum payable by the assessee as interest on any [loan or advances] from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan [or advances] [f)  any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,]

(g) any sum payable by the assessee to the Indian Railways for the use of railway assets, (Inserted by finance act 2016, effective from financial year 2016-17)

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

[Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

Explanation [1].—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.

Explanation 2.—For the purposes of clause (a), as in force at all material times, “any sum payable” means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law.

Explanation 3.—For the removal of doubts it is hereby declared that where a deduction in respect of any sum referred to in clause (c) [or clause (d] of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.

Explanation 3A.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.

Explanation 3B.—For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (f) of this section is allowed in computing the income, referred to in section 28, of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 2001, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.

Explanation 3C.—For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid.]

Explanation 3D.—For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance shall not be deemed to have been actually paid.

Explanation 4.—For the purposes of this section,—

(a)  “public financial institutions” shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956);

aa)  “scheduled bank” shall have the meaning assigned to it in the Explanation to clause (iii) of sub-section (5) of section 11;

(b)  “State financial corporation” means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951);

(c)  “State industrial investment corporation” means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and [eligible for deduction under clause (viii) of sub-section (1) of section 36

2 comments

  1. Whether HRA to be disallowed if not paid before due date of filling of return???

    • Prateek Agarwal

      Only bonus and commission is covered under this section 43B.
      Therefore HRA is not disallowed if not paid to the employee before due date of filling of return.

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