Understanding Section 43B(H) of the Income Tax Act: Applicability, Date, Limits, and Examples

India’s tax system is a complex and Detailed framework that regulates various aspects of tax deductions and payments for individuals and businesses. It is upon the basis that the Income Tax Act of 1961 builds a castle meant for constructing liabilities and differentiating the rules of computation in existence regarding various aspects. The various provisions in this Act about the specific issue of payments to be allowed as tax deductions for business activities include section 43B, specifically concerning deductions regarding certain other types of payments such as those made on interest, taxes, and contributions made by the business. A relatively newer insertion under this section, proposed in the Finance Act, 2021, Section 43B(H) has really come under the spotlight in the developing domain of Indian taxation.

What is Section 43B of the Income Tax Act?

Before understanding Section 43B of the Income Tax Act, it is best to first know of the different contexts under which Section 43B(H) has come in place. Originally, Section 43B of the Income Tax Act allowed businesses to deduct certain expenses only if the payment was made for such expenses and not merely on an accrual basis. Thus, it was intended to curb the malpractices of taxpayers making any deductions from their income about any expenses accounted for in the books, but actually not paid to the relevant authorities or creditors at all.

Section 43B applies to specific statutory payments like:

• Employee Provident Fund and other similar funds.
• Gratuity.
• Bonus.
• Interest on loans.
• Taxes and duties (e.g., GST, excise, income tax).

The crux of Section 43B is that it allows for a deduction to be claimed on such expenses only after making the payment. The deductions will not be allowed if the payment of such expenses is made after the due date for filing the income tax return even when accounted for in the respective financial year.

The Introduction of Section 43B(H)

Section 43B(H) was inserted by the Finance Act of 2021 to cover earlier provisions concerning the timely payment of certain contributions. They include contributions to the Employees' State Insurance (ESI) and Provident Fund (EPF) that an employer deposits by a specific timeline to be eligible for deduction under the Income Tax Act.

Applicability of Section 43B(H)

Section 43B(H) states that whenever the employer provides contributions toward employee welfare schemes, particularly Employee Provident Fund (EPF), Employees' State Insurance (ESI), and other related funds, such deductions are allowable only after such contributions have been made before the due date for filing the income tax return for the relevant financial year.

This provision is significant in that businesses would have an incentive to make regular timely payments into essential statutory welfare schemes, like EPF and ESI, to safeguard the interests of the workers and bring integrity to these funds.

Put simply, when an employer contributes to the EPF or ESI during a financial year, if that contribution is not deposited by the due date, which is when the employer has to file the income tax return for that financial year, he is not eligible to claim a deduction for that contribution under Section 43B(H).

Date of Enforcement

Section 43B(H) is applicable from the assessment year 2021-22 and corresponds to contributions made after that period. From the financial year 2025-26 onwards, the employer will be required to deposit employee welfare contributions before the due date for the current year's income tax return for the company to claim a deduction.

Limits under Section 43B(H)

One of the main highlights of Section 43B(H) is that the deduction is allowed only for contributions made by the employer towards EPF, ESI, or other related welfare funds. However, no particular limit is imposed over which contribution can be claimed as a deduction. As per this section, it must be deposited within the due date specified under the respective laws. Ultimately, Section 43B(H) safeguards the integrity of the contributions by recognizing only such contributions that are genuinely made and getting a handle on the manipulation whereby one just delays payment with the intention of lowering taxable income.

The due date for depositing such contributions is typically:

• For PF, the due date is the 15th of the following month after the salary is paid.
• For ESI, the amount due has to be paid within 15 days after the closure of the month in which it becomes due.

However, an employer shall verify the specific deadlines under the respective act to confirm compliance.

Examples of Section 43B(H)

To explain it better, let us take a couple of examples explaining how Section 43B(H) works.

Example 1: EPF Contribution

• Situation: Assume a contribution by the company of ₹1,00,000 is made for the Provident Fund for its employees for the financial year 2025-26. However, a payment of ₹1,00,000 is made on January 10, 2027. The employer files the income tax return for 2025-26 on October 30, 2026.
• Effect of Section 43B(H): Here, the employer is unable to claim ₹1,00,000 as a deduction under Section 43B(H) since the contribution was made after the due date for filing the income tax return (on October 30, 2026). Even if it was made during the relevant financial year, payment after the due date for the filing of returns will disallow the deduction under this section.

Example 2: ESI Contribution

• Scenario: The contributions of a company amount to ₹50,000 for the Employees' State Insurance (ESI) for its employees for the quarter ending in March 2026. The payment was made on May 15, 2026, whereas the income tax return is due on July 31, 2026.
• Impact of Section 43B(H): In this case, the company will be entitled to make a claim of ₹50,000 as a deduction for the financial year 2025-26 because the payment of the ESI contribution was made before the due date for filing the income tax return ending on July 31, 2026.

Example 3: Delayed Payment for a Late Filed Return

• Scenario: The employer made a contribution of ₹75,000 to the EPF in the year 2025-26, but the return was not submitted until after the final date of October 31, 2026, and, before that, the EPF amount had not been paid.

• Impact of Section 43B(H): The employer shall not be able to claim the deduction of ₹75,000 as the same was not paid before the due date for filing the return. A deduction for the contribution to EPF shall arise only if the payment is done before October 31, 2026.

Importance of Section 43B(H)

Section 43B(H) primarily aims, in the case of the employee welfare systems such as Employees' State Insurance and Provident Fund, to verify by entry that the contribution has actually been paid and not just debited to the book of accounts. This is a bold step toward strengthening employee welfare and gives assurance about timely compliance with statutory obligations by companies.

Conclusion

Section 43B(H) of the IT Act is one where an important provision is incorporated to ensure the actual and timely payment of employee welfare contributions. Tying the tax deduction for such contributions to their time of payment urges employers to fulfill their EPF, ESI, and similar fund obligations. Understanding the provisions, limits, and due dates is critical for businesses and employers to avoid losing out on potential deductions and ensure the welfare of their employees is maintained.

For employers, staying updated on the due dates and ensuring timely contributions is not just about tax deductions—it is also about being a responsible employer.

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