As a taxpayer, you might be claiming various expenses and exemptions to lower your income tax liability, but do you know that there are certain deductions that you can’t claim unless you have actually paid for them. In this article will understand those deductions and discuss the income tax provisions laid out under Section 43B of the Income Tax Act.
Section 43B states that specific statutory expenses could be claimed only in the year of actual payment. This section disallows the expenses which are not paid in the financial year or prior to the due date of filing income tax returns. Section 43B in short, deals with specific types of payments and guides an assessee to claim such payment as an expense in the assessment year in which it’s actually paid and not in the year where the liability for such payment was incurred.
For instance, Mr. Asthana, owner of a company employing 100 people, has paid the PF (provident fund) which is due to be paid to his employees in August 2019. This sum of provident fund relates to March 2019. In this case, Mr. Asthana can claim the payment of PF as the deduction for the financial year ending March 2019 itself by showing the proof of payment of PF while filing his return in September 2019 as he has paid on or before the due date of filing the income tax return. However, if Mr. Asthana fails to pay the PF on or before the due date of filing the income tax return and pays it in October 2019, this deduction would be available for a deduction for the financial year ending March 2020.
Therefore, for assessees having income from business or profession and maintaining their books of accounts under the mercantile basis of accounting, it’s crucial to keep in mind the above provisions, otherwise, they may not be entitled to such deductions.