As per section 43B, while computing income under the head PGBP (Profits and gains of business or profession), expenses are only allowed to be claimed in the year of payment only. This section deals with certain types of payments made by the assessee and directs them to claims such payments as an expense in the same assessment year it was paid and not in the year it was accrued as an expense. If the assessee accrues payments on the basis of the accounting concept followed, it should not apply for the payments made below.
Types of payment under Section 43B where the provisions apply:
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.
Contribution towards employee benefits:
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 payable on loans:
Sum payable as interest on loan borrowed. This includes loan borrowed by the assessee from public financial institution/state financial corporation/state industrial investment corporation in accordance with the terms and conditions under the agreement.
Interest payable on loan or advance:
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.
Payments to Indian Railways:
Payments made by the assessee to the Indian Railways is allowed to be claimed as an expense as and when the payment is made.
The assessee can deduct the payment made under the accrual system of accounting under the following conditions.
- The books or accounts are maintained by the assessee on mercantile basis.
- Payment of expenses is made on or before the due date for submission of ITR.
- The assessee is required to produce evidence of payment, to be filed with the Income tax returns.