Certain deductions allowed on actual payment basis only

(1)

The following sums payable, as specified in sub-section (2), shall be allowed as deduction while computing the income chargeable under section 26 only in the tax year in which such sums are actually paid irrespective of–– (a) any provision to the contrary in this Act; or (b) method of accounting regularly followed; or (c) the tax year in which the liability was incurred.

(2)

The sums payable by an assessee referred to in sub-section (1), shall be–– (a) tax, duty, cess, surcharge or fee, by whatever named called, levied under any law in force;

(b)

contribution of the employer to a provident fund or superannuation fund or gratuity fund or any fund for the welfare of employees;

(c)

amount payable by employer in lieu of any leave at the credit of the employee;

(d)

any sum referred to in section 32(a);

(e)

interest on loans or borrowings from specified financial entities as per the terms and conditions of the agreement governing such loans or advances;

(f)

amount payable to the Indian Railways for use of railway assets; or (g) amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006.

(3)

In case the amounts specified in sub-section (2), except the sum referred to in clause (g) thereof, are paid after the end of the tax year in which the liability was incurred, but on or before the due date of filing of return of income under section 263(1) for such tax year, the deduction towards such sum shall be allowed in such tax year.

(4)

If interest on loans or advances specified in sub-section (2)(e) is converted into a loan or advance or debenture or any other instrument by which the liability to pay is deferred to a future date, then it shall not be deemed to have been actually paid.

(5)

If a deduction in respect of any sum payable under sub-section (2) has already been allowed in any tax year when such liability was incurred, it shall not be allowed again in any subsequent tax year when paid.

(6)

The provisions of this section shall not apply to a sum received by the assessee from any employee as contribution towards any of the funds referred to in section 2(49)(o).

(7)

For the purposes of this section, “specified financial entities” means a public financial institution or State Finance Corporation or State Industrial Investment Corporation or notified class of non-banking financial companies or scheduled banks or co-operative banks (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank).