Deduction allowable only on actual payment

Statutory dues (GST / TDS / PF / ESI / bonus / leave encashment) and interest to banks / NBFCs / MSMEs are deductible ONLY in the year of actual payment, even though booked on accrual.

Key points

• The section lists specific items that are deductible only in the FY of ACTUAL payment: (a) any tax, duty, cess, or fee paid to government — GST, customs, excise, service tax;
• (b) employer contribution to PF, superannuation, gratuity, or leave-encashment fund;
• (c) bonus or commission to employees;
• (d) interest on loans from a public financial institution, scheduled bank, state finance corporation, or state industrial investment corporation;
• (e) interest on loans from an NBFC (added by Finance Act 2023);
• (f) leave encashment to employees;
• and (g) §43B(h) — any interest or sum payable to an MSME beyond the 45-day window prescribed by §15 of the MSMED Act (also added by Finance Act 2023).
• A useful carve-out applies to items (a) through (f): if paid BEFORE the due date for filing the ITR, the deduction is still allowed in the accrual year.
• BUT §43B(h) MSME interest has NO such carve-out — payment must actually happen by the FY-end for the deduction to land in that FY.

Reference: §43B, ITA 1961 — under ITA 2025 (FY 26-27 onwards), this is §37