Certain deductions Items allowed under Computation of Income to be only on actual payment as per the Provisions of Section 43B of act,1961 :

Deduction in respect of following expenses are allowed only if payment is made on or before the due date for furnishing return of income u/s 139(1)1 of the previous year in which such liability is incurred:

1. Any sum payable by way of tax, duty, cess, fee, by whatever name called, under any law for the time being in force.

2. Any sum payable as bonus or commission to employees for services rendered.

3. Any sum payable as interest on loan or borrowing from any

    • public financial institutions (i.e., IFCI, LIC, etc.);
    • a State financial corporation; or
    • State industrial investment corporation.

4. Any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing

♦ Systemically important non-deposit taking non-banking financial company means a non-banking financial company which is not accepting or holding public deposits and having total assets of not less than ` 500 crore as per the last audited balance sheet and is registered with the RBI.

♦ Deposit taking non-banking financial company means a non-banking financial company which is accepting or holding public deposits and is registered with the RBI.

5. Any sum payable as interest on any loans and 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.

6. Any sum payable by an employer in lieu of any leave at the credit of employee (i.e. leave encashment).

7. Any sum payable by an employer by way of contribution to any provident fund, superannuation fund, gratuity fund or any other fund for the welfare of employees.

8. Any sum payable by the assessee to the Indian Railways for the use of railway assets

Taxpoint:

♦ If payment is not made before the date mentioned above, then no allowance shall be allowed in respect of the outstanding liability. Deduction can, however, be claimed in the year of payment.

The method of accounting followed by the assessee is irrelevant.

♦ Sec.43B is applicable only on those expenditure which are allowed under the provisions of this Act, if an expenditure is already disallowed under the provision of this Act, payment of such expenditure within time shall not be sufficient to make it an allowed expenditure. E.g. Income tax paid ` 50,000 before due date of filing of return, is not allowed as deduction.

In general, due date for furnishing return of income u/s 139(1)

> Where audit of books of account is compulsory under any law : 30th September2 of the A.Y.

> In any other case : 31st July of the A.Y.

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 i.e. liability must have been accrued whether falls due or not.

Note :

1. Sec.43B is applicable only if the assessee is following mercantile system of accounting. However, if an assesse follows cash basis of accounting, deduction shall be allowed only in the year in which payment is made, even though the payment has been made on or before due date of filing of return.

2. The provision that “for claiming deduction, payment must be made on or before the due date of filing of return” shall be applied only for the relevant previous year in which such liability is incurred. If payment is made afterwards, deduction shall be allowed in the previous year in which payment is actually made, without considering the due date of filing of return.

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One Comment

  1. Rajinder says:

    Good Reading sir. Pl give your views on sec 36(1)(va) also particularly in view of amendment made by Fin Act 2021. What would be the position of allowablility for AY 2018-19 where amounts recd from employees towards ESI/PF are deposited late but before due date for filing of return of income u/s 139(1); such sums disallowed by AO but Appeals are pending before CIT(A). The amendment has been inserted w.e.f. 01-04-2021 and is applicable to AY 2021-22 onwards.Thanx

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