Section 43B: Deduction Allowable on Actual Payment

• Taxation
• ||
• September 18, 2021

Section 43B is related to the head ‘Income from Business and Profession’. It states some statutory expenses that can be affirmed as deductions from the business income only in the year of actual payment, disregarding its liability accrual.

Is TDS included in 43B?

Section 43B mainly protects a list of expenses that are permitted to be affirmed as deduction only in certain payment. TDS is not an expense, but a tax deducted on behalf of the deductee and deposited to the government’s treasury. Thus, TDS is not included in section 43B and cannot be claimed as an expense.

The List of expenses specified under section 43B is as follows:

• Any tax, duty, cess, or fee paid under any law in force is permitted as a deduction when it is delivered; this includes GST, customs duty, value-added tax, or any other taxes or cesses paid. In addition, interest paid in respect of these taxes (ex: due to late filing) is also eligible for deduction under this section.
• Contribution to any recognized employee benefit fund: contribution by the employer to any employee benefit fund such as Provident fund, Superannuation fund, Gratuity fund before the due date for setting those funds or before the due date of filing income tax returns
• Bonus or commission liable to employees – this sum should be the actual bonus/ commission paid to employees and not dividends payable to them as shareholders.
• Interest on borrowings from public financial institutions or state financial corporation following the circumstances governing such loan
• Interest on loans and promoted from scheduled bank similarly with the circumstances governing such loan
• Leave encashment furnished by an employer to his employees
• Payment to Indian Railways

If the interest mentioned in clauses 4 and 5 have been converted into a loan, then interest on such convertible loan will not be allowed to be deducted. Therefore, for any person with income from business and profession, maintaining his accounts on a mercantile basis, it is essential to know when the expenses mentioned above are allowed to be deducted.

Can deduction in respect of expenses mentioned under Section 43B be claimed on an advance payment?

According to this, an advance payment can also be claimed for the expenses covered under section 43B.

Exceptions when the deductible on an accrual basis

The exception is relevant if the following three conditions are satisfied:

• Assess keeps books of accounts on mercantile basis
• Payment in respect of expenses described above is made on or before the due date of submission return of income under sec 139(1)
• The confirmation of such payment is submitted along with the return of income. However, no appendix is possible with the new ITR forms. Therefore, the assessee should maintain such evidence and produce it by the assessing officer as and when needed.

At AJSH, we assist our clients with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about section 43B, kindly contact us.