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[Section 43B] : Certain Deductions to be Allowed only on Actual Payment Basis

Section 43B is applicable only if the taxpayer maintains books of account on the basis of mercantile system of accounting. The provisions of section 43B are given below—

Certain Expenses are Deductible on Actual Payment Basis -

The following expenses (which are otherwise deductible under the other provisions of the Income-tax Act) are deductible on payment basis—

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

  2. any sum payable by an employer by way of contribution to provident fund or superannuation fund or any other fund for the welfare of employees;

  3. any sum payable as bonus or commission to employees for service rendered;

  4. any sum payable as interest on any loan or borrowing from a public financial institution (i.e., ICICI, IFCI, IDBI, LIC and UTI) or a State financial corporation or a State industrial investment corporation;

  5. interest on any loan or advance taken from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank;

  6. any sum payable by an employer in lieu of leave at the credit of his employee; and

  7. any sum payable to the Indian Railways for the use of railway assets.

The above expenses are deductible in the year in which payment is actually made. There is, however, one exception given below.

Exception - Certain Expenses are Deductible on Accrual Basis -

If the aforesaid payment is actually made on or before the due date of submission of return of income, deduction can be claimed on Accrual Basis.

  • Due date of submission of return of income in the case of a company (or in the case of a taxpayer whose books of account are required to be audited under any law) is September 30 of the assessment year.

  • In the case of any taxpayer (having international or specified domestic transactions) due date of submission of return of income is November 30 of the assessment year.

  • In all other cases, the due date of submission of return of income is July 31 of the assessment year.

However, in case an assessee follows mercantile system of accounting, the payments covered in items No. 1 to 6 in the Table below can be claimed on 'due' basis as well, provided the payment for the same is made within the stipulated period mentioned against each expenditure:

Nature of Expenses Stipulated Time Period

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

Due amount should be paid on or before the due date of furnishing the return of income u/s 139(1) in respect of the previous year in which the liability to pay such sum was incurred.

2. 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.

3. Any sum payable to an employee as bonus or commission for services rendered.

4. Any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or State Financial Corporation or State Industrial Investment Corporation like IDBI, IFCI, UPSIDC, Delhi Financial Corporation, etc. in accordance with the terms and conditions of the agreement governing such loan or borrowing.

However, in cases (1) to (6), if the payment of outstanding liability is made after the due date, deduction can be claimed in the year of payment.

5. Any sum payable by the assessee as interest on any loan or advance from a scheduled bank or a co-operative bank (other than a primary agricultural credit society or primary co-operative agricultural and rural development bank) in accordance with the terms and conditions of the agreement governing such loan.

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

7. Any sum payable by the assessee to the Indian Railways for the use of railway assets.

 

Topics...on ‘Profits and Gains of Business or Profession’

Define … ‘Profits and Gains of Business or Profession’ and its Computation (Section 28)
Method of Accounting for Computing Business Income (Section 145)
Principles for Allowing Business Deductions / Allowances from Profits and Gains of Business or Profession.
Expenses Allowed as Deductions against Profits and Gains of Business or Profession [Section-30-37]
[Section 37(1)] : General Or Allowable Deductions under Business or Professions
Business Losses Deductible under the head  'Profits and Gains of Business or Profession'.
Expenses Not Deductible under the head 'Profits and Gains of Business or Profession (Section 40, 40A, 43B)
DEEMED PROFITS Chargeable to Tax as Business Income Under Profits and Gains of Business or Professions [Section 41]
Taxation of Undisclosed Business Income/Investments from Undisclosed Sources
Deduction in respect of Expenditure incurred on setting up of a Specified Business [Section-35AD] :
When Maintenance of Books of Accounts becomes Compulsory (Section 44AA)
Compulsory Audit of Books of Accounts by Chartered Accountant (Section 44AB)
Computation of Income On Estimated Basis Under Sections 44AD, 44ADA and 44AE



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