Section 43B of Income Tax

Last Updated On: May 1, 2020, 6:44 a.m.
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Section 43B of Income Tax Act

Section 43B of the Income Tax Act states that certain statutory expenses can only be claimed in the year of payment.

Section 43B provisions disallow the sum not paid in the financial year or before the due date of filing tax returns under the head “Profits and Gains of Business or Profession”. The section covers certain types of payments, which must be claimed by the assessee as expenses in the assessment year of payment, and not in the year of its accrual. In this article, we briefly discuss Section 43B of the Income Tax Act.

Deposit of Tax

Tax deposits included under this provision includes tax, duty, cess, fee, and any other type of tax paid to the government.

Contribution to Employee Benefits

Benefits are accorded to an employee by means of provident fund, gratuity, superannuation fund, and so on. Payments of these benefits by an employer are covered under this provision.

Commission/Bonus

An employer’s remittance of commission or bonus for the services rendered by an employee is included under the purview of the section.

Interest on Loans Borrowed

Interest on loans borrowed refers to the interest payable on loans borrowed, which includes the loans borrowed by the assessee from a public financial institution, state financial institution or state industrial investment corporation such as IFCI, UPSIDC, Delhi Financial Corporation, and so on are based on the terms and conditions of the contract. Payment of interest on loan availed from these institutions and that of a scheduled bank will be deducted from the business income.

Interest on Loans or Advance

Interest charges payable by an assessee on loan or advance availed from a scheduled bank based on the terms and conditions of the contract is covered under this provision.

Leave Encashment

Another addition to this provision, leave encashment is the sum of money paid by an employer for the leaves unutilized.

Remittances to Indian Railways

A taxpayer’s payment to the Indian railways can be claimed as an expense if it is remitted to the railway accounts from the financial year of 2016-17. If the payments are remitted after the due date of furnishing returns of that year, the expenditure would be allowed in the actual year of payment.

Period of Remitting Payments

The above payments must be remitted within the due date of furnishing the return of income for the previous year in which the liability occurred. However, the outstanding liability of tax payments and leave encashment are paid after the due date. Hence, deductions can be claimed only in the year of payment.

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