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  • Writer's pictureShubham Mishra

Section 43B of Income Tax Act, 1961: Certain deductions to be only on actual payment

Updated: Oct 14, 2022






A list of expenses permitted as deductions under the heading "Income from business and profession" is provided by Section 43b of the Income Tax Act. It lists some expenses that can only be deducted from business income in the year of the actual payment and not when the obligation to pay for them arises.

For instance, Mr. A, a business owner, paid the provident fund (PF) that was owed to his staff in the month of August 2018. This PF sum relates to the month of March in 2018. In this instance, by providing evidence of this when filing his return in September 2018, he is able to claim this deduction for the year ending March 2018 alone. Mr. A can take this deduction if he pays this sum in October 2018 for the tax year that ends in March 2019.

The following deductions are specified in this section

· When paid, any tax, duty, cess, or fee imposed by an enforcing law—including GST, customs duty, and other taxes and cesses—is eligible for a tax deduction. These taxes' interest payments are also deductible.

· Contribution to any recognized employee benefit fund: Before the deadline for depositing the funds or before the deadline for filing income tax returns, the employer must make a contribution to any recognized employee benefit fund, including PF, superannuation, and gratuity funds.

· Bonuses or commissions due to employees should be included in this figure; dividends due to them as shareholders should not be included.

· Interest on borrowings from state financial corporations or public financial institutions, subject to the terms.

· Interest on loans and advances from a Scheduled Bank calculated in accordance with the terms of each loan.

· Employer-provided leave encashment for his staff

· Giving money to Indian Railways.

When the interests mentioned in clauses 4 and 5 are converted into loans, this does not constitute the payment of deductible interest. Therefore, it is crucial for anyone keeping their accounts on a mercantile basis and earning income from a business or profession to be aware of the aforementioned provisions; otherwise, they may not be eligible for these deductions.

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