Section 43B of the Income Tax Act, 1961 deals with expenses that are allowed as deduction only on payment basis. Section 43B is one of the most popular and widely used provision among the Income Tax Professionals. There are a total of 6 expenses that are dealt under this section. In this article, we will discuss each and every clause of the Section 43B with detailed analysis and in laymen terms.
6 Clauses in Section 43B
Section 43B has the following SIX clauses that deals with expenditure relating to Bonus, Commission, Statutory Dues, Leave Salary, Interest on Loan and PF and Gratuity amounts. You will find a common pattern between all these 5 Clauses.
Tax, Duties and Cess etcSection 43B (a)
All payments by the employer relating to any statutory dues to the government like Income Taxes, Service Taxes, Sales Tax, Excise, Krishi Kalyan Cess etc are covered in this clause.
Payments to Employee Funds : Section 43B (b)
All the sums payable with respect to Employee Provident Fund Scheme, Superannuation fund, Employee Gratuity Fund or similar funds are covered in this provision. Such expense can be claimed by the employer, only if the payment has actually been paid, but not on accrual basis.
This clause has been inserted as a token of safeguard to the welfare of the Indian Employees.
Bonus/Commission to Paid Employees : Section 43B(c)
The first clause of S.43B deals with the expenditure incurred by a company on payments made to its employees on account of Bonus or Commission during the Previous Year.
Under the Companies Act, Both these expenses are allowable on payment or accrual basis, which ever is earlier.
However, as per Section 43B, these expenses are allowable as deduction only on payment basis. Even if the business is maintaining books on Mercantile basis, it does not make any difference.
Loan from PFI : Section 43B(d)
Any moneys payable by the employer on account of interest on any loan or borrowing obtained from:
- public financial institution
- State financial corporation
- State industrial investment corporation.
Interest on Loan from Banks : Section 43B(e)
All the moneys payable by the Assessee as interest on Loan or cash advance taken from a scheduled bank is deductible under the Income Tax Act, only if it paid to the bank and not just written in the books of account.
Leave Salary : Section 43B(f)
This is one of the most overlooked provisions in Section 43B. This clause deals with the amount payable by the employer to his employee, on account of lieu of any leave at the credit of his employee.
Conclusion : Section 43B Income of Tax Act
Through this article, we tried to clear all questions relating to Section 43B of Income Tax Act on a whole. If you have any further questions on Section 43B of Income Tax Act, feel free to post your questions to firstname.lastname@example.org.