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.
- Tax, duty, cess or fee, by whatever name called, under any law for the time being in force. (See Note 1)
- 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. (Note 2)
- Any bonus or commission to employees. If commission is payable to an agent, then this section is not applicable.
- 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 3)
- Interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances. (See Note 3) (Bold part is applicable from F.Y 2017-18)
- As an employer in lieu of any leave at the credit of his employee (Leave Encashment).
- 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. For example: An expense is disallowed under section 43B for FY 2016-17 and is actually paid in April 2018. Since this expense is actually paid in April 2018, deduction will be allowed in AY 2019-20. Here it is not allowed in AY 2018-19 even when it is paid before due date of filing return of AY 2018-19.
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 – Provisions of Sec.43B are applicable only in respect of employers contribution to provident fund, ESI, etc. Employees contribution to provident fund, ESI, etc., shall be allowed as deduction only when the payment of the same is made on or before the due date mentioned under the respective welfare Acts.
Note 3 – 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]
If interest is converted into another loan and name something like this: Funded Interest Term Loan (FITL), this does not change the situation and interest is allowed only on actual payment.
For example – A company takes loan of rs. 1 crore on 1st April 2017 and the repayment of loan starts from 1st April 2019. Since no interest is paid for year 2017-18 till the return filing date, no deduction is allowed in financial year 2017-18.
Section 43B details in Audit Report Form 3CD
If a person is liable for audit then the Chartered Accountant has to file details regarding payments under this section in Audit report to be provided in form 3CD. The details required to be given are
Point No. 26
(i) In respect of any sum referred to in clause (a),(b),(c),(d),(e) or (f) of section 43B, the liability for which :—
(A) pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year and was
(a) paid during the previous year;
(b) not paid during the previous year.
(B) was incurred in the previous year and was
(a) paid on or before the due date for furnishing the return of income of the previous year under section 139(1)
(b) not paid on or before the aforesaid date.
*State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cess, impost, etc., is passed through the profit and loss account.
- 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)
- Furnishing of bank guarantee cannot be equated with actual payment for the purpose of this section – CIT Vs. McDowell and Co. Ltd. – [TS-94-SC-2009-O]
- This section is attracted only when the expense is charged to Profit & Loss account – Jet Lite (India) Ltd. Vs. CIT – [TS-5546-HC-2015(DELHI)-O]