Section 43B — Deductions Allowed Only on Actual Payment

On payment basis. Even if you follow the mercantile (accrual) system, the listed 43B expenses are deductible only when actually paid. For all clauses except 43B(h), paying on or before the due date of filing the return under Section 139(1) lets you claim the deduction in the accrual year.

Yes. Under the Income-tax Act, 2025 (in force from 1 April 2026, i.e. Tax Year 2026-27) the payment-basis rule now sits in Section 37, titled "Certain deductions allowed on actual payment basis only." The substance, including the MSME clause, is unchanged. For FY 2025-26 returns you continue to refer to Section 43B of the 1961 Act.

Generally no. A 43B disallowance only defers the deduction to the year of actual payment — you do not lose it permanently. The one permanent loss is the employee's share of PF/ESI deposited after the statutory due date, which is disallowed under Section 36(1)(va) per the Supreme Court in Checkmate Services (2022).

Section 43B(h), inserted by the Finance Act 2023 and effective from AY 2024-25, disallows a deduction for any sum payable to a Micro or Small enterprise if it is not paid within the time limit under Section 15 of the MSMED Act, 2006 — 45 days where a written agreement exists, or 15 days where there is no agreement. If missed, the deduction shifts to the year of actual payment.

If you have a written agreement with a Micro or Small supplier, you must pay within the agreed credit period, subject to a statutory maximum of 45 days from the day of acceptance of goods/services. Without an agreement, the limit is 15 days. Pay within the limit to keep the income-tax deduction in the accrual year.

No. Unlike other 43B items, the "pay before the return due date" proviso does not apply to clause (h). What matters is whether the amount was paid within the 15/45-day MSMED limit and whether it was unpaid on 31 March. If it was overdue and still unpaid at year-end, it is added back and allowed only when actually paid.

No. Section 43B(h) applies only to suppliers registered as Micro or Small enterprises under the MSMED Act. Payments to Medium enterprises and to non-registered/large suppliers are outside 43B(h) and follow normal accrual deduction rules.

No. Wholesale and retail traders, though they may hold Udyam registration for priority-sector lending, are not treated as covered "suppliers" for the 43B(h) benefit per MSME clarification. Only Micro/Small manufacturers and service providers with Udyam registration trigger the 15/45-day disallowance.

Ask for the supplier's Udyam Registration Certificate, which states whether the enterprise is Micro, Small or Medium and whether it is a manufacturer/service provider or a trader. Maintain a vendor master with Udyam numbers and classification. Where a valid certificate is not provided, you generally treat the vendor as outside 43B(h), but keep the correspondence on record.

The employer's PF/ESI contribution (clause b) must be deposited on or before the due date of filing the income-tax return (commonly 31 October for audit cases, 31 July otherwise) to be deductible in the same year. If deposited later, the deduction shifts to the year of actual deposit. The employee's share is stricter — it must go in by the PF/ESI statutory due date or it is permanently disallowed.

No. The employee's share of PF/ESI deducted from salary is governed by Section 36(1)(va), not 43B. It must be deposited by the statutory due date under the PF/ESI law (typically the 15th of the next month). The Supreme Court in Checkmate Services (2022) held that late deposit results in permanent disallowance.

Bonus and commission (clause c) are deductible only when actually paid, but the proviso applies: if the bonus is paid on or before the ITR due date for that year, you can claim it in the accrual year. Bonus declared in March 2026 and paid in July 2026 (before the due date) is deductible in FY 2025-26; if paid after the due date, it moves to FY 2026-27.

Yes. Interest payable to a bank, NBFC or public financial institution is deductible only on actual payment under clauses (d) and (e). Importantly, interest that is merely converted into a fresh loan or funded interest term loan is not treated as "actually paid," so it stays disallowed until genuinely paid in cash.

GST, customs, excise and other statutory dues (clause a) are deductible only on payment. If the tax relating to FY 2025-26 is paid on or before the ITR due date, you can claim it in FY 2025-26; otherwise the deduction moves to the year of payment. Note GST is usually claimed on a net/exclusive basis, so 43B mainly bites where tax is routed through the P&L.

In Form 3CD, general 43B amounts (paid vs unpaid, and prior-year amounts now paid) are reported in Clause 26, while Section 43B(h) MSME details — including amounts disallowed for late payment to Micro/Small enterprises — are captured in Clause 22. Accurate reporting here prevents add-backs during assessment.