title: The Section 43B: A Detailed Guide of 2025 metatitle: Section 43B of Income Tax Act - Complete Guide 2025 type: incometax description: Understand Section 43B of the Income Tax Act 1961 – its rules, importance, expenses covered, 2025 amendments, compliance practices, examples, and how Indian businesses can benefit from timely deductions. date: 2025-05-26 lastmod: 2025-08-04T18:30:00+05:30 url: tax/income/section-43b-guide-2025/ button: label: Consult Tax Advisor icon: fas fa-arrow-right url: https://consumer.fincover.com/consult/tax

The Section 43B: A Detailed Guide of 2025

The Income Tax Act in India has a number of provisions which are crucial but Section 43B is one of the key provisions that might interest businesses, accountants and tax professionals because they can find some impact on the manner in which you can claim deductions on some of the expenses. Section 43B is of particular concern to a person dealing with tax compliance, business accounts or a person seeking an efficient method of planning tax liability.

It is an informative article on the meaning of Section 43B, its major characteristics, and examples to apply in 2025, recent amendments, the opinion of experts, disputes, and all that an Indian taxpayer or business owner needs to know about compliance and planning deductions.

What is Section 43B and Why it is Important?

The Income Tax Act, 1961, in Section 43B defines certain rules regarding the timing of claiming certain expenditure as a deduction. Some of the business related expenses can only be deducted in the year they are paid even though it may not be paid in the same year in which the liability is charged in the books.

This area was brought to the center stage due to the fact that, in many occasions, businesses would be claiming costs as deductions and wait to pay them off hence lowering their taxable income on paper without reducing cash.

Section 43B ensures that only those expenses that are actually paid within the financial year (or sometimes by the due date of filing the return) can be claimed for tax deductions. This provision made the time during which certain statutory and payments-based expenditures will be allowed, and it will seal loopholes and increase accountability.

What are the Important Provisions or Provisions of 43B ?

• Actual payment should be deductible: It should be actual payment and not accrual.
• Major statutory dues covered: GST, PF, gratuity, bonus, leave encashment, and interest on loans are some examples.
• It is applicable to any business regardless of the turnover or the type of business.
• The business expenses that are paid later than the due date are deductible to the year of payment.

Which are the Expenses that Section 43B Covers?

Section 43B lists out a set of payments that are only claimable upon payment. As per 2025, the primary things are:

• Tax, duty, cess or fee (such as GST and customs duties)
• Employer part in Provident Fund, Superannuation Fund, ESI and other welfare funds
• Bonus/commission of employees
• Bank and government financial institution and NBFC interest on loans
• Employees should leave encashment
• State or Central Government loan interest
• Payment to Indian Railways (for use of assets or services)

For instance, if you booked a GST liability or an employer PF contribution in March 2025 but paid in April 2025, deduction is only allowed if payment happens before the due date of filing the return of income (October 31, 2025, for most companies). Otherwise, the deduction is delayed to the following year.

You know?
Section 43B was expanded over the years to seal tax leakage as a result of late payments of statutory dues.

The other question that people pose is:

Does GST come under 43B?
Yes, GST is included under tax and is to be paid before deduction can be claimed in case it is not paid at the end of the year.

What will be your Tax Liability in 2025 ?

The key point of this part is the cash outflow, and only when a business pays a statutory or interest liability, it can count it as an expense in the taxation system.

Practical Example:

Suppose ABC Ltd. owes Rs. 1,00,000 towards employer’s PF for March 2025 and books the expense on 31 March 2025. If payment is made by 31 October 2025 (the due date for filing return), it can claim deduction for FY 2024-25. Otherwise, there is a deduction in FY 2025-26 only.

Implications:

• Better tax compliance- tax compliance as companies have to pay dues to avail deduction
• Affects cash flow control and the year end planning
• Precludes the danger of disallowance and penalty in case of delayed payments
• Firms with limited cash flows have to plan on settling liabilities before the year end

Expert Speak:
CA Rajeev Kumar opines that section 43B keeps the businesses in check and makes sure that the statutory dues are not avoided at the eleventh minute. Most of the companies were requested to pay taxes earlier just because of late payment.”

What does the Due Date of Section 43B mean?

For most expenses, the due date is the date prescribed by the relevant statute or, in absence of that, the due date to file the income tax return under section 139(1).

• Deduction can be claimed in the same FY provided payment is made on or before due date
• In case of post-payment, the deduction is permitted in the year of payment

What happens to Employers when it comes to PF, ESI and Other Dues under Section 43B?

Employers are required to make PF, ESI, and so on contribution on or before due dates as per the statutes. These were discussed in section 43B, however, following Supreme Court decisions and through different Finance Acts, there is a differentiation between employer and employee contributions:

• Employer contributions – deduction allowed if paid by due date under section 139(1)
• The employee contributions not covered by 43B, the contributions must be paid prior to due date as per respective welfare laws

This has resulted in numerous practical problems and misunderstandings, thus extreme care in adhering to it is essential.

Another question that people ask is:

And what happens when PF or ESI of employer is not paid on time?
When paid by return filing due date, deduction is available same FY. But for employees’ share, only payment by due date under PF or ESI law gives deduction.

Explain the Significant Alterations and Modifications of the Year 2025

Section 43B is being continually updated by the government to cover loopholes. This was amended and explained by the most recent Finance Act 2024:

• Payments to micro and small enterprises under MSME Act are now covered by Section 43B(h). Deduction is allowed only if paid within the allowed period (45 days maximum).
• Greater clarifications on applicability on NBFC loan interest, new reporting requirements of companies
• Emphasis on digital payments which was exhibited by less tracking and better auditing

Tax consultants, CFOs and business owners should ensure they are aware of new circulars and notifications issued in advance of closing the financial year.

Did you know?
New sub-clause (h) under Section 43B is meant to protect MSMEs from delayed payments and assures them faster settlements from buyers.

What are the Advantages and Disadvantages of Section 43B of Indian Businesses?

Pros

• Forces timely payment of workers, government and banks
• Limits the fines and interest rates by default
• Promotes ethics of tax planning and ethics of accounting
• Tangible budgetary schedules of estimated expense

Cons

• May strain cash flows particularly in Q4 of every financial year
• Difficult to manage in businesses in which there are branches and accounts
• ERP software should not only keep booking but also record the payment dates.
• Any late compliance results in failure to deduct and increased tax

Section 43B of Small Businesses, Startups and Large Corporates

The startups and MSMEs may have even more pressure because the cash flow is still tight. Nevertheless, the higher the compliance with Section 43B, the more credibility it adds and the legal tussles are expensive. Compliance software and tools are increasingly being provided by many online marketplaces that enable companies to verify, plan and reconcile all statutory payments to multiple vendors in a single location simplifying Section 43B compliance.

Other questions that people will pose include:

Is it possible to use software to make businesses Section 43B compliant?
Yes, most online accounting and ERP software now have automated due date, MSME payment and Section 43B compliance reminders.

What are the Best Practices of Compliance with Section 43B?

• Write payment plans: All the statutory payments should be in time so that there is no last minute rush
• Track on digital system: Buy accounting systems that track real payment date rather than voucher date
• Educate the employees: Educate the finance departments on the due dates and compliance traps
• Reconcile monthly: it is advisable to balance the unpaid liabilities monthly as the year end approaches
• Review MSME payments: Mark MSME vendors separately to avoid missing new compliance under 43B(h)
• Electronic payment audit evidence at store: Audit electronic payments made at store by storing electronic evidence of payment made at the store

Expert Insight:
According to tax consultants, Section 43B should be treated as a tough month-end exercise, which should never be left to the last minute, as long as accounts and payments remain reconciled on a quarterly basis, then Section 43B will never cause any last minute panic.

The Difference between Section 43B and Section 36.

These two sections are concerned with business expenses but there is a very different foundation to them. This is a comparison at a glance:

Section 36 thus takes care of the normal day-to-day expenses and you can claim them on accrual basis. Section 43B is applicable to payment only in cases where actual cash flow is obligatory to deduct.

What is the role of Section 43B in assisting the Indian government policy and MSMEs?

Section 43B, in particular, post-2024 amendment, is in direct line with government objectives to:

• Ensure timely payment by large buyers to small and medium vendors (MSME relief)
• Late booking tax avoidance Slash
• Encourage the use of digital money trail instead of cash

This brings India near to the international accounting and disclosure practices.

Other questions that people have are:

Does Section 43B favor employees and small business?
Yes, because it pushes the companies to pay all the dues within a very short period of time, salaries, bonuses, MSME dues.

Real-life Experiences: Real Life Applications of section 43B

As the head of the finance of a mid-sized manufacturing firm in 2025, I got an opportunity to see how Section 43B changed the approach of our firm towards year end. Even statutory GST and PF payouts used to be delayed three years back until the cash flows were recovered in April or May. However, we did not enjoy that deduction in the year when a tax audit discovered a missed payment and we ended up paying more taxes, biting into the pay increases.

We have been conducting a Section 43B audit since then, the first one being in February. Our ERP will have online reconciliation tools. Our accountant highlights all the payments that are to be made within the next eight weeks and finance prioritizes payments to vendors/MSME and statutory payments. We are no longer compliant and our reputation with suppliers and staff has been enhanced since the delay in payment is no longer the case.

These modifications also enhanced our rating when we re-negotiated with the banks or in listing in online finance market places where timely statutory compliance is a great advantage point.

Long Story Short or Short Summary

• Section 43B limits deductions to some expenses in case they were actually paid
• Includes taxes, PF, bonus, leave encashment, payments of MSME and interest
• Or pay dues prior to the due date of return and claim the deduction in the same year, or forego the deduction in that year
• It was amended in 2024 to incorporate even stricter regulations of payments made by MSMEs
• Make sure that the digital tools and monthly reviews are adhered to
• It is beneficial to tax authorities, employees, MSMEs and ensures accountability

Section 43B: FAQs of What Else People Asked

Q1: What is section 43B of Income Tax Act and example?
It is a part where the deduction of some business expense is possible only after payment is made such as interest on loans, GST or bonus. To take another example, bonus declared in March 2025 should be paid by October 31, 2025, to be claimed in FY 2024-25.

Q2: Can Section 43B be applicable to professionals and LLPs?
Yes, it is applicable to any kind of businesses, professionals, firms and LLPs.

Q3: Is the permanent loss of deduction possible in case of late payment of GST or ESI?
It is not permanent but the deduction is postponed to the year when you actually pay.

Q4: What was the reason behind amending Section 43B in the year 2024?
To incorporate stricter compliances on payments to MSME vendors and add more NBFCs as the business ecosystem is changing.

Q5: What are some of the software or online apps that will come in handy with Section 43B compliance?
ERP and modern accounting solutions provide dashboards, reminders and auto reconciliation to businesses, enabling them to monitor due dates and status of payment. You can also compare compliance tools online and choose the best one that suits your company.

Q6: What is the penalty in case of non compliance of Section 43B?
There will be no separate penalty but the expense will not be allowed as a deduction until paid, adding to taxable income.

Sources:

• Income Tax Department 43 B
• The Best of Union Budget 2024
• Amendment of Finance Act, and professional forums