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Section 43B – Deductions Allowed only on Actual Payment

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)

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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