Section 40(a)(ii) versus 43B(a)

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Nagaraj (Querist)
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14 September 2019 Dear Experts,

40(a)(ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains;

43B(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or

Income tax expenses is disallowed under section 40(a)(ii), can it be allowed under section 43B(a) at the time of making payment?

Karim N Shaikh

Karim N Shaikh (Expert)
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16 September 2019 43B : Applicable to taxpayer maintained books of account on mercantile Basis
I any payment required to made in that Financial and same not made before due date of filing of income tax return then such expenditure is disallowed under section 40(a)(ii)
But same is allowed as deduction in year in which such payment made u/s 43B

Nagaraj

Nagaraj (Querist)
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16 September 2019 Income tax is disallowed under section 40(a)(ii) and the same is allowed under section 43B?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 Great question — this touches on an important distinction between Sections 40(a)(ii) and 43B(a) of the Income Tax Act, 1961.

🔍 Key Provisions:
Section 40(a)(ii):
"Any sum paid on account of any rate or tax levied on the profits or gains of any business or profession shall not be allowed as deduction."

✅ Meaning: Taxes like Income Tax, MAT, Dividend Distribution Tax, etc., which are directly levied on business profits, are never allowed as a deduction — irrespective of whether they are paid or not.

Section 43B(a):
Allows deduction on actual payment basis for any tax, duty, cess or fee by whatever name called, under any law for the time being in force.

✅ Meaning: Certain statutory liabilities, like GST, Excise Duty, PF, ESI, Customs Duty, etc., are allowed as deductions only when paid, even if otherwise due on accrual.

❌ Can Income Tax disallowed u/s 40(a)(ii) be allowed u/s 43B(a)?
No, absolutely not.

🚫 Section 43B does not override Section 40(a)(ii).

Section 40(a)(ii) specifically disallows taxes on profits/gains (like income tax).

Section 43B(a) allows other taxes (not on profits) on payment basis, such as:

GST

Excise duty

Property tax

Sales tax

Cess or fees not levied on profits (like Krishi Kalyan Cess in some cases)

🧾 Summary Table:
Type of Tax Disallowed u/s 40(a)(ii)? Allowed u/s 43B on Payment?
Income Tax ✅ Yes ❌ No
GST / VAT / Excise / Customs ❌ No ✅ Yes
Property Tax (on business asset) ❌ No ✅ Yes
Dividend Distribution Tax (old) ✅ Yes ❌ No

✅ Conclusion:
Income tax is permanently disallowed u/s 40(a)(ii) and can never be allowed under section 43B, even if paid.

Only other statutory levies not linked to profit, and which fall under 43B(a), can be claimed on actual payment basis.

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