You may have incurred a business expense, but if you haven’t paid it, you might not get the tax benefit yet.
That’s the rule under Section 43B of the Income Tax Act, which says that certain deductions are allowed only on actual payment, regardless of the method of accounting followed (cash or accrual).
This provision ensures that taxpayers cannot defer payment while claiming the deduction in the same financial year, helping plug timing gaps that could otherwise be misused to reduce tax liability.
Let’s simplify what Section 43B is, what payments it applies to, and how to comply with it.
✅ What Is Section 43B?
Section 43B overrides the general accounting principle of “accrual” or “mercantile” system for specific expenses. It mandates that for certain expenses, deduction is allowed only in the year of actual payment, not in the year they become due.
This section applies primarily to businesses and professionals who claim expenses while computing their income under the head “Profits and Gains of Business or Profession.”
📋 List of Expenses Allowed Only on Actual Payment Basis
As per Section 43B, the following expenses are allowed as deductions only in the year they are paid:
|
Expense Type |
Deduction Allowed Only If Paid |
|
Tax, duty, cess or fee payable under any law |
Yes |
|
Employer’s contribution to PF/ESI |
Yes (subject to 43B(h) for MSMEs) |
|
Bonus or commission to employees |
Yes |
|
Interest on loans/borrowings from public financial institutions or scheduled banks |
Yes |
|
Leave encashment for employees |
Yes |
|
Payment to MSME suppliers (43B(h) – newly inserted) |
Yes, if paid within 45/15 days |
💡 The due date under Section 43B generally extends up to the return filing due date (Section 139(1)), except for MSME payments under 43B(h), which must be paid within 15 or 45 days (depending on agreement type).
📅 Impact of Section 43B on Financial Year-End Planning
Let’s say:
- You owe ₹2,00,000 as a bonus to employees for FY 2023–24
- You pay it in June 2024 (before filing your ITR in July)
👉 You can still claim it as a deduction in FY 2023–24.
But if you:
- Pay it in October 2024 (after the return filing due date)
👉 You cannot claim it in FY 2023–24. You can only claim it in the year of actual payment (FY 2024–25).
⚠️ What is 43B(h) – New MSME Rule from FY 2023–24?
As per the Finance Act 2023, a new clause 43B(h) was inserted for payments to MSMEs registered under the Udyam portal.
Key points:
- Payment must be made within 15 days (if no written agreement)
- Or within 45 days (if a written agreement exists)
- Otherwise, the expense won’t be allowed as a deduction in that financial year
- Even if paid after year-end but within the ITR due date, it won’t be allowed
This was done to ensure timely payments to MSMEs, but it also puts a compliance burden on buyers.
🧠 People Also Ask
❓ Is GST payable also covered under Section 43B?
Yes. GST and other taxes payable to the government are allowed only on actual payment, even if accrued in accounts.
❓ Is employee PF contribution also covered?
Only the employer’s contribution is covered under Section 43B. Employee’s contribution must be deposited within the prescribed due date under the respective law (not ITR date) as per Section 36(1)(va).
❓ Can I claim unpaid interest on bank loans?
Yes, only if you pay it before the ITR due date under Section 139(1). If not, it becomes disallowed under Section 43B.
❓ Is Section 43B applicable to professionals too?
Yes. If you’re a professional computing income under the head "Profits and Gains from Business or Profession," 43B applies to your eligible business-related expenses.
🚫 Common Mistakes to Avoid
- Assuming 43B applies to all expenses (it applies to only specified ones) "
- Claiming a deduction for an unpaid bonus or ESI without payment
- Delaying MSME payments beyond 45 days and expecting a deduction
- Ignoring due dates in case of PF/ESI payments, especially under the new rules
- Not maintaining proof of actual payment (bank statements, challans)
🎯 Final Thoughts from a CA’s Desk
“In taxation, timing matters. And Section 43B is all about timing your payments right.”
If you’re a business owner or professional, plan your year-end payments smartly. Don’t lose out on tax benefits just because of a delay in transferring funds, especially when it comes to statutory dues and employee-related payments.
📞 Need Help Navigating Section 43B or Planning Year-End Deductions?
At CallmyCA, we help:
- Analyse your expense ledger for 43B compliance
- Ensure timely payments for full deduction eligibility
- Review your MSME obligations under 43B(h)
- File accurate, deduction-optimised ITRs for your business
👉 Click here to book your year-end tax planning with CallmyCA
