File Tax Returns

Expert assistance on your annual filings

Get Expert Assistance

Section 43B in Income Tax Act, 1961

Updated on:  

08 min read

Section 43b of the income tax act provides a list of  expenses allowed as deduction under the head ‘Income from business and profession’. It states some expenses that can be claimed as deduction from the business income only in the year of actual payment and not in the year when the liability to pay such expenses is incurred.

In our previous article, we discussed what kinds of deductions are available from income derived from business or profession. In this article, we shall look at what expenses are deductible only on actual payment being made. We can also say that deduction is on payment and not on the accrual basis. But, the assessee will be given time to pay these amounts before he files his return of income or the due date for filing his return of income. When filing the returns, the assessee can show the proof of making such payment and claim the deduction in the same year (in which the amount was accrued).

For example, Mr. A, an employer, has paid the provident fund (PF) that is due to be paid by him to his employees in the month of August 2018. This amount of PF pertains to the month of March 2018. In this case, he can claim this deduction for the year ending March 2018 itself by showing a proof of this while filing his return in September 2018. If Mr. A pays this amount in October 2018, this deduction will be available for the year ending March 2019.

The following deductions are specified in this section

  • 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 in accordance with the conditions governing such loan
  • Leave encashment provided by an employer to his employees
  • Payment to Indian Railways

When the interests mentioned in the clause 4 and 5 have been converted into a loan, then such conversion does not amount to payment of interest which is deductible. Therefore, for any person having income from business or profession maintaining his accounts on mercantile basis, it is important to know the above provisions, otherwise, he may not be entitled to these deductions.

Frequently Asked Questions

What is section 43B?

Section 43b is related to the head ‘ Income from business and profession’. It states some statutory expenses that can be claimed as deduction from the business income only in the year of actual payment irrespective of the year of accrual of its liability.

Is TDS included in 43B?

Section 43B mainly covers a list of expenses that are allowed to be claimed as deduction only in case of actual payment. TDS is not an expense but a tax which is deducted on the behalf of the deductee and deposited to the government’s treasury. Hence TDS is not included in section 43B and hence cannot be claimed as an expense

Can expenditure mentioned under Section 43B can be claimed on an advance payment?

Section 43B covers a list of expenses that can be claimed on actual payment. In pursuant to this, an advance payment can also be claimed as per section 43B

inline CTA
File your income tax for FREE in 7 minutes
Free, simple and accurate. Designed by tax experts