Question 4 OR (a)

Section 43B: unpaid liabilities allowed only when paid (as set, 1961 Act, AY 2022-23)

3 marks

Time to write: About 6 minutes

From an older CBCS paper

Question

Question 4 OR (a) · 3 marks

1. Explain the provision of section 43B with respect to the deduction on account of unpaid liabilities. Name any two expenses that are covered under section 43B. (3)

Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2022-23 (previous year 2021-22), with the dates as printed.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

6 minfor 3 marks

Read from the question

any twoThe paper asks for any 2, and this is one of them. Only 2 are marked: a third earns nothing.
section 43BThe section is named: open with what it says, then explain or apply it.

Write it in this order

1 The rule of section 43B and the list of expenses 1½ marks 3 min
2 Payment before the due date of the return ½ mark 1 min
3 Two expenses named 1 mark 2 min

123

Short on time? Step 1 carries 1½ of the 3 marks: guard its minutes.

Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

The provision

A business that keeps its accounts on the mercantile system normally deducts an expense in the year it is incurred, whether or not it has been paid. Section 43B overrides this for certain expenses: they are deducted only in the previous year in which they are actually paid, whatever the year in which the liability arose. The aim is to stop a business from claiming deductions for statutory dues and employee dues that it keeps unpaid.

The expenses covered (section 43B(a) to (g)) are: taxes, duties, cesses and fees under any law; the employer's contribution to a provident, superannuation, gratuity or other employee welfare fund; bonus or commission to employees; interest on loans from public financial institutions, State financial corporations and State industrial investment corporations; interest on loans and advances from scheduled banks and co-operative banks (other than primary agricultural credit societies and primary co-operative agricultural and rural development banks); leave salary payable by an employer; and sums payable to the Indian Railways for the use of railway assets.

The relief for payment before the return date

A sum incurred in a year but paid after its end is still allowed in that year if it is paid on or before the due date for furnishing the return of that year under section 139(1), and proof of payment is furnished with the return (proviso to section 43B). A sum paid after that date is allowed only in the year of actual payment.

Example (our own): a trader owes GST of ₹80,000 for March 2022. If he pays it by 31 July 2022 (his due date), it is allowed for 2021-22; if he pays it in October 2022, it is allowed only for 2022-23.

Two expenses covered

Any tax, duty, cess or fee payable under any law, such as GST, customs duty or municipal taxes on business premises (section 43B(a)).
Bonus or commission payable to employees for their services (section 43B(c), with section 36(1)(ii)).

Where the 3 marks sit

#	Component	Marks
1	The rule of section 43B and the list of expenses	1.5
2	Payment before the due date of the return	0.5
3	Two expenses named	1
	Total	3

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