Learn all about deductible expenses under the third head of Gross Total Income, ‘Profits and Gains of Business or Profession’. This article details how certain expenses are deductible under Section 43B of the Income Tax Act, and the specific conditions that must be met.
Deductible Expenses Under Section 43B
Section 43B allows for the following expenses to be deductible when actually paid by the assessee:
- Taxes, Duties, and Fees: Any sum payable as tax, duty, cess, or fees by any name under any law.
- Employee Benefits: Contributions to provident funds, superannuation funds, gratuity funds, or other welfare funds for employees.
- Bonuses and Commissions: Any sum payable as bonus and commission to an employee.
- Interest on Loans: Any interest payable on loans or borrowings from public financial institutions, Central or State Government, or NBFC (applicable from assessment Year 2024-25) declared by the Central Government.
- Interest on Bank Loans: Any interest payable on loans or advances from scheduled banks or cooperative banks.
- Leave Payments: Any sum payable to an employee for unused leave.
- Railway Assets Usage: Any sum payable to the Indian Railways for the use of assets.
- Payments Under MSME Act: Any amount paid late under section 15 of the Micro, Small and Medium Enterprises Development Act. (applicable from assessment Year 2024-25)
The above expenses are deductible, in the year when it is paid, it may be pertaining to any previous year.
If the following conditions are fulfill then expenses are deductible:
- Assesse maintain his books of account on mercantile basis.
- Payment of above expenses are to be made before the due date of submitting Income Tax Return u/s 139(1).
- Proof of payment is to be attached with return of income. But now it is not possible to attached annexure, it is advisable to keep the documents, proof with you so that as and when asked by the assessing officer we can produced.
If the amount of tax, duty, cess, fee and bonus and interest on loan taken from Public Financial Institutions or a State financial corporation or a State Industrial Investment Corporation or sum payable in lieu of any leave paid before the due date of submitting Income Tax Return under Section 139(1) of the Act, and proof of that is to be attached with return of income are deductible expenditure.
Normally bonus is declare in month of March, but actually paid during Diwali days, which may be after the due date of furnishing return of income, then the amount of bonus will be deducting next year that is in the year of payment.
So far as amount of provident fund or gratuity fund, under that Act date of payment is prescribed and if the amount is paid before that date, then the amount of provident fund and gratuity will be deductible in previous year.
Interest due on payment of Municipal Tax of property is not considered as tax, hence it will not be disallowed section 43B. (CIT vs. Orient Bewarages Ltd., (2000) 164CTR (Kolkata) 529.
But Allahabad High Court has said, in the case of CIT vs. Sinyaovi Industries Ltd.,(2014) 111 DTR (Allahabad) 274 that interest on excise duty is extended liability and it will not be allowed and section 43b will apply.
Electricity duty is not following with in the preview of section 43B, hence if paid after due date is admissible expenses. (CIT vs. Urja Vikas Nigam Ltd. (2011)322 ITR 579(guj).
Conclusion: Understanding Section 43B is crucial for businesses to maximize their allowable deductions. Keeping track of payment dates and maintaining proper documentation are key. Consultation with a tax professional is advised to ensure compliance and optimal benefit.