Section 43B of Income Act 1961 provides that specific expenditure/payment are eligible for deduction under the Act. This section allows them as a deduction only in the year of actual payment irrespective of the year of accrual of such expenditure.
Section 43B of Income Tax Act 1961
Section 43B allows you to claim or deduct certain expenses or payments only in the year of actual payment. Thus, you cannot claim a deduction in the year in which the liability to pay such expenses incurs. E.g., you have paid the expense in April 2017. section 43B allows a deduction in AY 2018-19 and not in AY 2017-18. Even if you have paid expense before the due date of filing return of AY 2017-18, it won’t allow you to claim a deduction.
However, this section is not applicable to any sum paid on or before the due date of filing of ITR. This is stipulated U/S 139(1) of the Act.
Applicability of section 43B
Following are the types of payments where the provisions of section 43B apply:
Any sum payable by an assessee as a way of tax, duty, cess or fee and all other types of taxes paid to the government by whatever name it is called under the law for the time being in force.
Any sum payable by the taxpayer as an employer by way of contribution to any PF or gratuity fund or superannuation fund or any other fund for the welfare of employees. However, you must note that this section is only applicable to employer’s contribution and not to employee’s contribution.
Any sum referred to in subsection (1) clause (ii) of Section 36.
Bonus or commission to the employees for services rendered. But the bonus paid to an agent is not applicable. This is because there is not an employer-employee relationship between employer and employee. Instead, it is an agent-principal relationship.
Interest on any loan or borrowing from any public financial institution/state financial corporation/state industrial investment corporation, as per the terms and provisions of the agreement governing such loan or borrowing.
Interest on loan or advances from a scheduled bank/co-operative bank except for a primary agricultural credit society or a primary co-operative agricultural and rural development bank as per the terms and conditions of the agreement.
Any sum payable by an assessee by way of leave encashment to his employee.
Any sum payable by an assessee to Indian Railways for the use of Railway Assets.
As per the section, ‘Any sum payable‘ means a sum for which an assessee incurred liability in the PY even though such sum might not have been payable within that PY under the relevant law.
However, in the case of interest on loan or borrowing or advance, if you have not actually paid the interest and converted into loan or advance, then section 43B will not treat it as paid and will not allow it as a deduction to the year in which it relates. Section 43B allows it as a deduction only in the year in which you have actually paid such converted loan. E.g., if a company takes a loan of Rs. 50,00,000 on 1st April 2017 and the repayment of loan starts from 1st April 2019; no deduction is allowed in FY 2017-18 as no interest is paid in FY 2017-18.
Section 43B overrides all other sections in the Act. Therefore, section 43B may not allow the deduction if you have not paid it in respect of items covered here; even if any other section allows it to be deducted.
An assessee can deduct the payment made under the accrual system of accounting if;
He maintains the books or accounts on mercantile basis
He makes the payment on or before the due date of submission of ITR
An assessee needs to submit the evidence of payment along with the ITR