Expense allowed only if paid!


Expense allowed only if paid!

Section 43B of Income Tax Act 1961

Section 43B of Income Tax Act 1961provides that certain expenditure shall be allowed as a deduction only in the year of actual payment irrespective of the year of accrual of such expenditure.

However, the section shall not apply to any sum which is paid on or before the due date of filing of return of income as stipulated under section 139(1) of Income Tax Act 1961

The following deductions are specified in section43B of Income Tax Act 1961

  • Any tax, duty, cess or fee paid under any law in force is allowed as a deduction when it is paid- this includes GST, customs duty or any other taxes or cesses paid. Interest paid on these taxes are also eligible for deduction.
  • Contribution to any recognized employee’s benefit fund: contribution by the employer to any employee’s benefit fund namely PF fund, superannuation fund, gratuity fund before the due date for depositing those funds or before the due date of filing income tax returns
  • Bonus or commission payable to employees- this amount 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 in accordance with the conditions governing such loan
  • Interest on loans and advances from scheduled Bank or co-operative bank in accordance with the conditions governing such loan
  • Leave encashment provided by an employer to his employees
  • Payment to Indian railways for use of railway asset

Further it has been clarified that when the interests mentioned in the clause 4 and 5 have been converted into loan or advance or borrowing, then the interest so converted shall not be deemed to be actual payment. Hence would not be allowed as deduction.

Note: This section is applicable irrespective of method followed by assessee for maintenance of books of accounts.

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