Expenses Allowed on Payment Basis

Section 43B is an over-ruling section and anything contained in other provisions of the Income Tax Act should not be applicable to the payments mentioned under this section.

Section 43B states that certain payments should be allowed to be claimed as an expense only in the year in which they have been paid and not in the year in which the liability to pay such sum was incurred. Thus, for the following expenses, accrual concept of accounting should not be followed and only cash basis of accounting should be followed.

However, the provisions of Section 43B shall not apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing his Income Tax Return under Section 139(1) in respect of the previous year in which liability to pay such sum was incurred by the assessee and the evidence of such payment is furnished along with the income tax return.

Payment of Taxes

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

Employer Contribution for benefit of Employee

Any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity find or any other fund for the welfare of the employees

Bonus/ Commission

Any Bonus or Commission payable to the Employees

Interest on any Loan or Borrowing

Any sum payable by the assessee as Interest on any Loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loans of borrowings, or

Interest on any Loan or Advance

Any sum payable by the assessee as Interest on any Loan or Advance from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advance

Provision for Leave Encashment

Any sum payable by the assessee as an employer in lieu of any leave to the credit of his employee

Payment made to Railways

With a view to promote prompt payment to Railways, Budget 2016 has amended Section 43B and from Financial Year 2016-17 onwards, the payments made to Railways would be allowed to be claimed as an expense on Payment basis.

Other Relevant Points

For the removal of any doubts, it has been clarified that a deduction of any sum being interest payable under Clause (d) or Clause (e) of this Section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan .or borrowing shall not be deemed to have been actually paid.

As per Section 43B

Notwithstanding anything contained in any other provision of this Act*, a deduction Sudame otherwise allowable under this Act in respect of:

a) Any sum payable by the assessee by way of tax, duty, cess or fee, (by whatever name called, under any law for the time being in force);

b) Any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees;

c) Any sum payable as bonus or commission to employee for services rendered;

d) Any sum payable by the assessee as interest on any loan or borrowing from any public finan­cial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing;

e) Any sum payable by the assessee as interest on any loan or advances from a scheduled bank or (wef A.y 2018-19 from 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;

f) Any sum payable by the assessee as an employer in lieu of any leave at the credit of his em­ployee.

g) Any sum payable to Indian Railways for the use of railway Assets (wef A.y 2017-18)-Section 43B to include certain payments made to Railways