## Specific Deductions Allowable Only on Payment Basis — Section 43B
Applies to an assessee following the accrual (mercantile) basis of accounting.
### Part A — Deductions linked to the due date under Section 139(1)
The following expenses incurred in the current previous year are deductible only if actually paid on or before the due date for filing the return under Section 139(1):
1. Any taxes, cess, duty, interest on taxes etc. (Except income tax and penalties.)
2. Employer's contribution to welfare funds — provident fund, superannuation fund, gratuity fund, or any other welfare fund.
3. Bonus or commission to employees for services rendered.
4. Interest on loans/borrowings from Banks, NBFCs, PFIs, SFCs, SIICs. (Excluding primary agricultural/rural development banks.)
5. Leave encashment paid by the employer.
6. Payments to Indian Railways for use of railway assets.
If paid after the Section 139(1) due date, the deduction is allowed in the previous year of actual payment.
### Part B — Deductions linked to credit period under the MSMED Act — Section 43B(h)
Any expenditure payable to a Micro or Small enterprise beyond the time limit under Section 15 of the MSMED Act, 2006 is disallowed if not paid within the credit period.
| Circumstance | Credit Period |
|---|---|
| No written agreement | 15 days |
| Written agreement | 45 days |
If paid subsequently after the credit period, the deduction is allowed in the actual year of payment.
> Important: Section 43B(h) covers Micro and Small enterprises only — Medium enterprises are NOT covered.
### Key Clarifications
1. Conversion of interest into loan/debenture is NOT treated as payment — no deduction for such conversion. Only actual payment counts.
2. Welfare fund contributions — employer vs employee:
| Employer Contribution | Employee Contribution |
|---|---|
| Section 43B applies | Section 43B does NOT apply |
| Disallowed if not paid by Section 139(1) due date | Treated as income u/s 2(24)(x) if not deposited by the due date under the respective welfare law |
| Subsequent-year deduction allowed if actually paid | No such benefit — permanent disallowance in effect |
3. Definition of Micro/Small enterprise (Finance Act 2025):
| Type | Investment in P&M | Turnover |
|---|---|---|
| Micro | ≤ ₹2.5 crore | ≤ ₹10 crore |
| Small | ≤ ₹25 crore | ≤ ₹100 crore |