Section 43B of the Income tax act, 1961 states that certain statutory expenses are allowed to be claimed in the year of payment only. It disallows the sum which is not paid in the financial year or at least before the due date of filing tax return while computing income under the head “Profits and Gains of business or profession”.
This section in short deals with certain types of payments and directs the assessee to claim such payments as an expense in the same assessment year when it was actually paid and not in the year in which the liability to pay such sum was incurred.
In case an assessee follows the mercantile system of accounting, the payments stated below can be claimed on the due basis, provided the payment for the same is made within the stipulated period mentioned against each expenditure.
Any sum payable by the assessee by way of tax, duty, cess or fee and all other types of taxes paid to government by whatever name it is called under the law.
Sum payable by the employer (assessee) to the employee towards contribution to welfare funds such as provident fund, gratuity or superannuation fund.
Any sum payable by the employer to the employee as bonus or commission as payment for the services rendered.
Interest charges payable by the assessee on loan or advance taken from a scheduled bank in accordance with the terms and conditions under the agreement.
Sum paid by the employer to the employee towards encashment of the leave balance.
Let’s say, an expense is disallowed under section 43B for FY 2016-17 and is actually paid in April 2018. Since this expense is actually paid in April 2018, deduction will be allowed in AY 2019-20. Here it is not allowed in AY 2018-19 even when it is paid before due date of filing return of AY 2018-19.
The assessee can deduct the payment made under accrual system of accounting under certain conditions as stated below:
Payment must be paid on or before the due date of furnishing the return of income under section 139(1) in respect of the previous year in which the liability to pay such sum was incurred. But in case of payment of taxes and payment made in case leave encashment the payment of outstanding liability is made after the due date then deduction can be claimed in the year of payment only.
Form 3CD is a statement showing relevant particulars and if a person is liable for the tax audit, then he has to mandatorily display the details about all the payments mentioned under section 43B in the Audit report in form 3CD.
1. Whether expenditure covered under Sec.43B can be claimed as a deduction in the Year of payment, although it is an expenditure of a subsequent year?
Ans: Section 43B requires that specific items listed that are eligible for deduction may be allowed only on payment in the year of payment. But where such payment is made in advance, it can be allowed in the year of payment, though the amount is deductible in normal circumstances under the law in the year in which it is booked as an expenditure. As long as the payment is for an admissible item of expenditure it is deductible, irrespective of the year to which it relates to as long as it is paid during the year.
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