Test eligibility and payment separately
For FY 2025–26 and AY 2026–27, apply the Income-tax Act, 1961. First test employee bonus or commission under section 36(1)(ii). The bonus or commission must be paid to an employee for services rendered, and the sum must not otherwise have been payable to that employee as profits or dividend. Section 43B(c) then applies an actual-payment condition to the otherwise deductible amount. A permanent eligibility problem is not a timing disallowance that can automatically reverse on payment.
Read the applicable text: Income-tax Act, 1961: sections 36 and 43B Form 3CD: clause 26 CBDT: notified ITR-6 for AY 2026–27 CBDT Circular 7/2026.
Use the applicable return deadline
For an otherwise deductible liability incurred in FY 2025–26, the first proviso to section 43B can preserve the FY deduction if actual payment is made by the applicable section 139(1) due date and the evidence condition in the proviso is satisfied. Retain payroll and bank evidence in accordance with the applicable filing procedure. CBDT Circular 7/2026 extends 31 October to 21 November 2026 for taxpayers in serial number 2 of the table below Explanation 2 to section 139(1). A taxpayer required to furnish a section 92E report is in a separate class; check its applicable return deadline separately. The audit-report date and actual filing date are different checks.
Split the opening and current populations
For a liability disallowed in a prior year, identify what was actually paid during FY 2025–26 and check that it was not already allowed. A payment after 31 March 2026 of a previously disallowed amount is not an FY 2025–26 settlement. Match employee-level allocations to payroll records, bank evidence and the tax register. A debit to the liability ledger alone is not proof of payment.
Tie the audited figures to the return
In Form 3CD clause 26, report opening liabilities that were not allowable in an earlier year in A(a) if paid during the year and A(b) if unpaid during the year. For current liabilities, use B(a) for qualifying payments on or before the applicable return due date and B(b) for those unpaid by it. For AY 2026–27, Part A–OI 11c feeds total 11i and Schedule BP item 18 for the current P&L amount disallowable under section 43B. Part A–OI 10c feeds total 10i and BP item 31 for allowable earlier disallowances. Compare those fields against the gross ledger, the applicable deduction tests and any overlapping add-back.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Eligible current expense split by deadline
A company debits otherwise deductible bonus of ₹12 lakh. It pays ₹4 lakh in FY and ₹5 lakh by its applicable deadline. ₹9 lakh qualifies on the facts and ₹3 lakh is the current disallowance.
Illustrative example 2: Payment in the extended window
A company covered by Circular 7/2026 pays eligible FY 2025–26 bonus on 12 November 2026. That is nine days before 21 November and 12 days after 31 October. Use the extended date only if the stated class and evidence tests are met.
Illustrative example 3: Old disallowance paid during FY
Previously disallowed bonus is ₹7 lakh. ₹4.25 lakh is paid during FY 2025–26. On the stated facts the prior-disallowance deduction is ₹4.25 lakh and ₹2.75 lakh remains in the opening-cohort ledger.
Illustrative example 4: Do not repeat an earlier allowance
Of ₹8 lakh settled in FY 2025–26, ₹5 lakh was already allowed for FY 2024–25 under the proviso and ₹3 lakh relates to a separate older disallowed item. The additional deduction is ₹3 lakh, not ₹8 lakh.
Illustrative example 5: Keep the eligibility problem separate
Of a ₹10 lakh book expense, assume ₹2 lakh fails section 36(1)(ii). Of the eligible ₹8 lakh, ₹6 lakh is paid by the deadline. The total add-back is ₹4 lakh: ₹2 lakh under the underlying deduction rule and ₹2 lakh under section 43B(c). For the former, the notified Part A–OI field 6c applies where the bonus would otherwise be payable as profits or dividend; it is not a second timing add-back.
Illustrative example 6: Book-to-tax bridge
Starting profit is ₹65 lakh. A ₹5 lakh current timing add-back and a ₹2 lakh deduction for a previously disallowed amount paid in the year bring the result to ₹68 lakh before other adjustments.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the employee and bonus scheme | Payroll and scheme documents |
| 2 | Test services and dividend substitution | Approval and eligibility analysis |
| 3 | Separate prior disallowances from current expense | Tax liability roll-forward |
| 4 | Confirm the applicable section 139(1) deadline | Statute and relevant CBDT circular |
| 5 | Match each payment to liability and date | Bank and payroll support |
| 6 | Identify amounts already allowed | Prior computation and orders |
| 7 | Calculate current and prior movements separately | Payment and tax working |
| 8 | Reconcile Form 3CD clause 26 | Audit report and schedules |
| 9 | Tie Part A–OI to Schedule BP once | Notified return and computation |
| 10 | Carry forward unresolved timing items separately | Closing liability and evidence file |
Sixteen practitioner FAQs
1. Does every payroll bonus enter section 43B(c)?
First test whether it is otherwise deductible under section 36(1)(ii).
2. Can a dividend substitute become deductible on payment?
Payment does not cure a failure of the underlying deduction rule.
3. Can a provision prove actual payment?
No. Match the liability to settlement evidence.
4. Which deadline governs a current liability?
The applicable section 139(1) due date for the company.
5. Does the audit due date control?
No. Distinguish it from the return due date.
6. Does Circular 7/2026 apply to every company?
Check the specified class; do not assume universal coverage.
7. What if actual filing occurs before a qualifying payment?
Review the available correction route and evidence requirements on the actual facts.
8. Where is a qualifying current disallowance shown?
Part A–OI 11c, through 11i to BP item 18.
9. Where is a qualifying older allowance shown?
Part A–OI 10c, through 10i to BP item 31.
10. Can an old amount paid after 31 March enter 10c for FY 2025–26?
No. Review the relevant payment year.
11. What if a prior return already allowed the cost?
Do not claim the same liability again on payment.
12. How should several bonus periods in one bank payment be handled?
Allocate the payment using payroll and supporting liability records.
13. Does every difference between audit and return imply double disallowance?
Reconcile the underlying facts, amount and actual computation effect before drawing a conclusion.
14. Should a disputed entitlement be treated as a timing difference?
Resolve the underlying legal and accounting nature first.
15. Can withholding records support the file?
They may corroborate the record; trace actual settlement independently.
16. How should an unpaid eligible balance be handed over?
Retain its vintage, reason for disallowance and payment evidence as it becomes available.
Official sources
Income-tax Act, 1961: sections 36 and 43B Form 3CD: clause 26 CBDT: notified ITR-6 for AY 2026–27 CBDT Circular 7/2026 CBDT Notification 23/2025: amended Form 3CD clause 26 CBDT: corrigendum to notified ITR-6