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What is Section 43B of the Income Tax Act about?

Updated: Mar 8

Section 43B of the Income Tax Act, 1961, deals with specific expenses incurred by businesses or professionals under the head of "Profits and gains of business or profession" (PGBP). This section specifies that certain expenses can only be claimed as deductions from the taxable income in the year they are actually paid, not in the year the liability arises.

In simpler terms, Section 43B outlines a list of statutory expenses that are not eligible for tax deductions until the payment is made, regardless of when the expense was incurred. This provision operates on a cash basis of accounting, contrasting with the accrual basis where expenses are recognized when incurred, not necessarily paid.

Here are some key points about Section 43B:

  • It applies to specific expenses like taxes, duties, interest, employee benefits, bonuses, commissions, and payments to Indian Railways.

  • Deductions are allowed in the year of payment or before the due date of filing the income tax return, whichever is earlier.

  • This section aims to prevent inflated deductions and ensure a more accurate reflection of taxable income in the year the cash outflow actually occurs.

It's important to note that Section 43B is just one aspect of tax regulations. Consulting with a tax professional is recommended for a complete understanding of applicable tax rules and their implications for your specific situation.

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