Section 43B – Tax deductions based on actual payment

Section 43B of Income Tax act allows certain expenses on the basis of actual payment made within the stipulated time i.e. before the due date of filling income tax return. If such expenses are not paid within the due date then it will be allowed in the year of payment i.e. on the basis of actual payment.

Section 43B will be applicable only if incomes are chargeable to tax under section 28 i.e. under the head profits and gains from business or profession.

Following expenses are allowed as IT deduction only when payments are actually made within the due date for filling income tax return u/s 139(1) i.e. before 31^st July of the assessment year (for financial year ending 31^st march 2013 the due date was 31^st July 2013). 

1. Any tax, duty, cess or fee, by whatever name called under any law for the time being in force; or
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; or
3. any bonus or commission to employees; or
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; or
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; or
6. any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,

If about listed expenses are paid after the due date of filling tax return then such expenses will be allowed as IT deduction under section 43B only in the year of actual payment i.e. if above expenses are related to financial year ending 31^st march 2013 and are paid after the due date of tax return filling but before 31st march 2014, then such expenses are allowed in the financial year ending 31^st march 2014.

As per Circular 496 dated 25/09/1987 and 674 dated 29.12.1993;

• Where the State Governments make an amendment in the Sales-tax Act to the effect that the sales tax deferred under the scheme shall be treated as actually paid, the statutory liability shall be treated as discharged for the purposes of section 43B.
• Where the State Governments, instead of amending the Sales-tax Act, have issued Government Orders notifying schemes under which sales tax is deemed to have been actually collected and disbursed as loans then such sales tax liability as converted into loan will have similar statutory effect as can be achieved through amendments of the Sales-tax Act.

Other relevant points for Section 43B of IT act

1. Royalty for extraction of limestone will be treated as tax for the purposes of section 43B of IT act.