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Section 43B of Income Tax Act: Expenses businesses can cover apart from payment to MSMEs
May, 10th 2024

A section of MSMEs and traders in India is expecting the revision or revocation of the new clause h brought under Section 43B of the Income Tax Act, 1961 by the government to address the delayed payment issue of MSMEs. The concern among certain MSMEs in textiles and exports and traders is around the new clause that disallows expenses to their buyers on invoices unless paid within 45 days (where agreement exists) and within 15 days if there is no agreement.

Other than clause h, there are seven other clauses — a list of expenses allowed as deductions under the heading ‘Income from Business and Profession’ — under Section 43B for businesses and professionals while computing their taxable income.

 

Below are the seven clauses or expense types that can be deducted on payment made by a business. Importantly, expenses can be claimed for deduction in the year they were paid instead of the year incurred. Moreover, the deduction is not on the accrual basis accounting. 

 

The expenses “shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him,” the act read. 

(a) Amount paid by way of tax, duty, cess or fee under any law for the time being in force 

(b) Amount paid by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees 

(c) Amount paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission 

(d) Amount paid as interest on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation as per the agreement governing such loan or borrowing 

(e) Amount paid as interest on any loan or advances from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank as per the agreement governing such loan or advances 

(f) Amount paid as an employer in lieu of any leave at the credit of his employee 

(g) Amount paid to the Indian Railways for the use of railway assets

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