Whether deduction u/s 43B available post conversion of entity

Tax queries 85 views 1 replies

If there was disallowance u/s 43B on account on non payment and during the year the entity for e.g A LLP gets converted into company, whether the company can claim the deduction of that expense on payment of the amount post conversion?

Replies (1)

Yes — subject to conditions:

Under the Income Tax Act, business reorganization (like LLP to company conversion under Companies Act and as per Section 47(xiiib) of the IT Act) can enjoy tax neutrality, meaning the business is considered to continue, just in another legal form.

In such cases:

  • The successor entity (Company) is entitled to claim deductions that were available to the predecessor (LLP).
  • Since Section 43B allows deduction in the year of actual payment, and the same business continues, the company can claim the deduction in the year of payment — even if the expense was originally disallowed in the LLP’s books.

Important Conditions (Section 47(xiiib)) to Ensure Tax Neutrality:

For this to work, the conversion must satisfy conditions like:

  • All assets/liabilities are transferred to the company.
  • Shareholders of LLP become shareholders of the company in same proportion.
  • No consideration other than shares.
  • Turnover and other conditions (e.g. ₹60 lakh turnover or ₹5 crore asset limit) are met.
  • Company holds 50% shares of LLP partners for 5 years, etc.


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