SECTION 43B : EXPNESES ALLOWABLE ON PAYMENT BASIS

EXPNESES ALLOWABLE ON PAYMENT BASIS SECTION 43B

Section 43B of the Income Tax Act is concerned with Profit and gains of business or profession. This provision states that assessee’s can claim certain payments as expenses; however, they can do so in the year it was paid not in the year it was incurred. The Following expenses (except point (h)) are allowed only if they are actually paid up to the due date of return filing as per Section 139(1).

(a)Any tax, Duties, Cess & Fees.

(b)Employer’s contribution towards Superannuation Provident Fund (SPF), Recognized Provident Fund (RPF), Approved Gratuity Fund, Approved Superannuation Fund, New Pension Scheme, any other fund as per law.

(c)Bonus or Commission to employees.

(d)Interest on loan to any Public Financial Institution, State Financial Corporation, State Industrial Investment Corporation, Scheduled Banks (Scheduled Banks include co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank).

(e)Leave encashment (Leave Salary) to employees.

(f)Any sum payable to the Indian Railways for use of Railway Assets.

(g)Any sum payable by the assessee to a micro or small enterprises beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2016 (Added w.e.f. Assessment Year 24-25 by Finance Act, 2023).

Note: If payment (a to g) made after due date of return filing & payment (h) made after time limit of MSMED Act, then such expenses shall be allowed in the Year of Actual Payment.

NOTES:

1.Where the interest payable on loans has been converted into loan or borrowing, it shall not be deemed that the interest is paid off. Interest shall be allowed as deduction in the Previous Year in which such installments are paid off.

2.If interest payable on loan is converted into debentures or any other instrument by which the liability to pay is deferred to a future date shall not be treated as actual payment.

3.Any payment made to Micro & Small enterprises allowed as deduction in current year if payment is made within the time allowed u/s 15 of MSMED Act otherwise allowed in the year of Actual Payment.

4.Time limit as per Section 15 of MSMED Act: Where any person purchases goods or services, from a micro or small enterprise, the payment shall be made before the date agreed upon between him and supplier in writing. In no case the period agreed upon between the supplier and the buyer in writing shall be more than 45 days. If, however, there is no such agreement, the payment shall be made within 15 days of acceptance or deemed acceptance of goods or services.

Definition of Micro and Small Enterprises

The Definition of Micro and Small Enterprises as amended in Budget 2025 is as follows:

Micro Enterprises

Small Enterprises

Investment in Plant and machinery or equipment’s

Upto Rs. 2.5 Crores

Upto Rs. 25 Crores

Turnover

Upto Rs. 10 Crores

Upto Rs. 100 Crores

Example 1: Kunal Ltd. purchased goods from Sharma Ltd. (a small enterprise as per MSME Act) for Rs. 15 lakhs on 2^nd March 2025. As per written agreement payment is to be made upto 30^th April 2025. However, payment is made as follows:

2,00,000 paid on 30^th March 2025.

4,00,000 paid on 6^th April 2025.

3,00,000 paid on 15^th April 2025.

6,00,000 paid on 6^th May 2025.

Solution:

Date of acceptance of goods is 2^nd March 2025. As per agreement the due date was 30^th April 2025, but as per MSMED Act in no case the period agreed upon between the supplier and the buyer in writing shall be more than 45 days. Hence, the payment is to be made on or before 16^th April 2025 (i.e. the agreed date of payment or 45 days, whichever is earlier).

Deduction will be available to Kunal Ltd. as Follows:

Amount	Payment Date	Due date as per MSMED Act	Payment made before due date?	Basis of Deduction	P.Y in which expense is allowed
2,00,000	30^th April 2025	16^th April 2025	Yes	Accrual	P.Y 24-25
4,00,000	6^th April 2025	16^th April 2025	Yes	Accrual	P.Y 24-25
3,00,000	15^th April 2025	16^th April 2025	Yes	Accrual	P.Y 24-25
6,00,000	6^th May 2025	16^th April 2025	No	Payment	P.Y 25-26

Example 2: Suppose in example 1 if there is no agreement about the time of payment of goods.

In case there is no agreement between the buyer and seller regarding payment of goods to seller registered under the MSMED Act as Micro or Small Enterprise then the payment shall be made within 15 days of acceptance or deemed acceptance of goods. In our case since no written agreement was made regarding payment of goods, the due date of payment as per MSMED Act is 17^th March 2025 as the date of acceptance of goods is 2^nd March 2025.

Deduction will be available to Kunal Ltd. as Follows:

Amount	Payment Date	Due date as per MSMED Act	Payment made before due date?	Basis of Deduction	P.Y in which expense is allowed
2,00,000	30^th April 2025	17^th March 2025	No	Payment	P.Y 24-25
4,00,000	6^th April 2025	17^th March 2025	No	Payment	P.Y 25-26
3,00,000	15^th April 2025	17^th March 2025	No	Payment	P.Y 25-26
6,00,000	6^th May 2025	17^th March 2025	No	Payment	P.Y 25-26

Nayan Saluja & Company

SECTION 43B : EXPNESES ALLOWABLE ON PAYMENT BASIS

Definition of Micro and Small Enterprises

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