How to Claim Section 43B of the Income Tax Act?

Section 43B of the Income Tax Act states that certain statutory expenses can be claimed in the year in which the payment was made and not in the year in which the payment liability was incurred. According to Section 43B, the expenses can be claimed by the assessee only in the year of payment. This Section of the Income Tax Act, deals with deductions on actual payments, while computing income under the head profit and gains from business or profession.

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 How to Claim Section 43B of the Income Tax Act?

Deductions under Section 43B of Income Tax Act:

If the assessee follows the mercantile system of accounting, the payments mentioned below can be claimed on due basis:

• Deposit of Tax: Any sum deposited by an assessee in the form of Tax, duty, Cess or fee, GST, Customs Duty and all other types of taxes paid to the Government.
• Employer’s Contribution Towards Employee Benefits: Any amount payable by employer (assessee) towards the employee benefit and welfare funds like provident fund, gratuity or superannuation can be claimed under Section 43B. The employer must make sure that all such contribution is made before the due date of depositing these funds or before the due date of filing Income Tax Returns.
• Bonus/Commission: Any sum paid by the employer to the employee in the form of commission or bonus as payment for services rendered is included under the purview of this section. However, the amount must be in the form of a real bonus or commission and not be in the form of dividend payments.
• Interest on Loans Borrowed: Any sum payable by an assessee in the form of interest on loan or borrowing refers to interest paid on loans borrowed. Interest on borrowed loans include the loans availed from public financial institutions, state financial institutions or state industrial investment corporations. Payment of interest on the loans availed from these financial institutions will be deducted from business income. 
• Leave encashment: Leave encashment is the money paid by the employer to the employee, towards encashment of leave. An employer can claim tax deductions under Section 43B for the amount paid towards leave encashment.
• Remittance to Indian Railways: Payment made by an assessee to the Indian railways can be claimed as an expense as and when the payment is made from the financial year 2016-17. If the payments are done after the due date of filing income tax returns of that year, then such expenditure can be claimed in the year it is actually paid.
• Period of Remitting Payments: The payments mentioned above must be paid with the due dates of filing income tax returns for the year in which the liability occurred. But, in case of payment of taxes and payment made towards leave encashment, if the outstanding liability is paid after the due date, then deductions must be claimed in the year of payment only.

SEE ALSO: Income Tax Law And Income Tax

Exceptions:

The taxpayer can claim deductions if the payments are made under the accrual system of accounting under the conditions stated below: 

• In case the taxpayer follows the mercantile system of accounting.
• When all the payments are made on or before the due date of submission of income tax returns under Section 139.
• The evidence of all such payments must be submitted by the taxpayer along with the return of income while filing ITR.

Can expenditure under Section 43B of Income Tax Act be claimed as deduction under the year of payment, although it is an expenditure of the subsequent year?

Section 43B deals with certain specific items that are eligible for deductions, which can be allowed for payment in the year the actual payment is made. In case such payments are made in advance, it can be allowed if the liability has occurred, although the amount is deductible under normal circumstances under law in the year in which it is recorded as 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.

SEE ALSO: Section 80E of Income Tax Act

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