📘 Complete Guide with Latest Updates, Coverage & Examples
Section 43B of the Income-tax Act, 1961 is one of the most critical provisions for businesses at the time of financial year closing. It ensures that certain expenses are allowed as deduction only when they are actually paid, irrespective of the accounting method followed. This section plays a major role in year-end tax planning, audit, and compliance.
❓ What is Section 43B?
Section 43B states that specified expenses are allowed as a deduction only on actual payment basis, even if the taxpayer follows the mercantile system of accounting.
👉 Simply put:
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Expense booked ≠ Allowed deduction
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Payment made = Allowed deduction
🎯 Purpose of Section 43B
The main objective is:
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✔ To prevent misuse of accrual accounting
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✔ To ensure timely payment of statutory dues
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✔ To avoid claiming deductions without actual payment
📋 Expenses Covered Under Section 43B
The following expenses are allowed only on payment basis:
🔹 Statutory Dues
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GST
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Customs duty
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Excise duty
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VAT (where applicable)
🔹 Employee-Related Payments
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Employer contribution to PF
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Employer contribution to ESI
🔹 Other Key Expenses
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Bonus or commission to employees
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Interest on loan from:
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Banks
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Financial institutions
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NBFCs
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Leave encashment
🗓️ When is Deduction Allowed?
Deduction is allowed in:
✔ Same Financial Year If payment is made on or before 31 March
✔ Next Financial Year (Still Allowed in Current Year) If payment is made before due date of return filing (Section 139(1)) 👉 This is a very important benefit.
💡 Example of Section 43B
Case 1 – Payment Made Before Due Date
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Bonus payable for FY 2025-26 = ₹1,00,000
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Paid on: 30 June 2026
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Return filing due date: 31 October 2026 ✔ Deduction allowed in FY 2025-26
Case 2 – Payment Made After Due Date
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Bonus payable = ₹1,00,000
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Paid on: 15 November 2026 ❌ Not allowed in FY 2025-26 ✔ Allowed in next year (FY 2026-27)
⚠️ Important Condition for PF & ESI
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Employer contribution → Covered under Section 43B
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Employee contribution → Governed by separate provisions (strict due date rules)
Delay in employee contribution may lead to disallowance.
🔍 Special Focus – Year-End Compliance
Before closing FY 2025-26, businesses must ensure:
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✔ PF / ESI paid on time
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✔ GST liability cleared
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✔ Bonus / commission paid or planned
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✔ Interest on loans paid
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✔ Leave encashment provision reviewed
🚫 Common Mistakes Under Section 43B
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❌ Booking expense but not making payment
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❌ Missing return filing due date
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❌ Confusing employee vs employer PF contribution
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❌ Not tracking unpaid statutory dues
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❌ Incorrect provision entries
📉 Impact of Non-Compliance
If payment is not made:
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Expense is disallowed
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Taxable income increases
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Higher tax liability
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Interest and penalties may apply
🌟 Why Section 43B is Important
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✔ Ensures genuine expense claim
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✔ Impacts tax computation directly
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✔ Critical for audit and assessment
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✔ Highly relevant for year-end planning
🏁 Conclusion
Section 43B is one of the most important provisions for businesses during financial year closing. It requires careful monitoring of statutory and specified payments to ensure that deductions are not disallowed. Businesses should review all outstanding liabilities before 31 March and ensure timely payments to optimise tax position and avoid future tax issues.