The decision for AY 2026–27
For FY 2025–26, apply section 43B(f) of the Income-tax Act, 1961 to otherwise deductible employer sums in lieu of employee leave. A provision does not establish actual payment. Keep the statutory payment evidence with the return computation. For a liability incurred in that financial year, actual payment by the company's applicable section 139(1) due date can support deduction in AY 2026–27 under the proviso. A previously disallowed balance generally qualifies in the year of actual payment. The Supreme Court upheld clause (f) in Union of India v. Exide Industries Ltd.
Read the applicable text: Income-tax Act, 1961: section 43B Supreme Court: Exide Industries Form 3CD: clause 26 Notified ITR-6 for AY 2026–27 CBDT Circular 7/2026.
Build an employee-level bridge
Extract opening provision, current expense, payments and reversals. For each payment, identify the employee, entitlement, payroll run, bank settlement and underlying accrual vintage. Reconcile opening book provision to opening tax-disallowed balances separately: some opening book items may already have been allowed in the prior return under the proviso. Do not infer a tax deduction from a debit to the liability account.
Use four payment buckets
Separate current liabilities paid by 31 March 2026, current liabilities paid after year-end through the applicable section 139(1) due date, current liabilities not paid by that date, and previously disallowed liabilities actually paid during FY 2025–26. Maintain a separate status for opening items still unpaid on 31 March. A post-year-end payment of an opening disallowed item is not a payment during FY 2025–26.
Determine the company's cut-off
Use the applicable section 139(1) due date for the taxpayer, checking the statutory class and any specific extension. CBDT Circular 7/2026 extends the 31 October 2026 return deadline to 21 November 2026 for the taxpayers it identifies; its separate audit date does not set the section 43B(f) payment cut-off. A company required to furnish a report under section 92E has its separate statutory return deadline of 30 November 2026; the circular’s extension for the October class does not set that deadline. An early filing can leave later payments before the statutory or extended cut-off outside the evidence held when filed. Review the lawful correction route and audit-report implications where facts change.
Map the two directions into the notified ITR-6
Form 3CD clause 26(A)(a) captures previously disallowed opening amounts paid in the previous year; (A)(b) captures those unpaid during that year. Clause 26(B)(a) and (b) distinguish current liabilities paid by the applicable deadline from those not paid by it for this clause. Put current P&L debits disallowable under clause (f) in Part A–OI 11f; aggregate 11i feeds Schedule BP item 18. Put earlier disallowances allowable now in Part A–OI 10f; aggregate 10i feeds Schedule BP item 31. Check these totals alongside all other section 43B categories.
Prove that each tax adjustment appears once
For simple fact patterns the net BP effect versus books is the current disallowance less the prior disallowance allowed now. Where expense is rebooked, reversed, capitalised or included in a different schedule, trace the journal and test the independent basis for deduction and any section 41 issue. Avoid a mechanical adjustment based only on the actuarial report or a net movement in the ledger.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Current accrual with split payments
The company debits ₹12 lakh: ₹4 lakh is paid by 31 March, ₹5 lakh more by the applicable return due date and ₹3 lakh later. ₹9 lakh is supported for AY 2026–27; ₹3 lakh goes to 11f, subject to the stated facts.
Illustrative example 2: Opening balance and partial settlement
Of a ₹9 lakh opening balance previously disallowed, ₹6 lakh is paid during FY 2025–26. Enter ₹6 lakh in 10f and retain ₹3 lakh outstanding in the tax bridge.
Illustrative example 3: Prior-year deduction already obtained
The company pays ₹7 lakh during FY 2025–26, but ₹5 lakh was allowed in the earlier return as timely post-year-end payment. Only ₹2 lakh was previously disallowed and can qualify in 10f.
Illustrative example 4: Cash after year-end on two vintages
The company pays ₹4 lakh on 30 April 2026: ₹3 lakh against FY 2025–26 expense and ₹1 lakh against an older disallowed item. Assuming the proviso conditions, ₹3 lakh is eligible in AY 2026–27; ₹1 lakh is outside AY 2026–27’s 10f and is reviewed for deduction in the year of actual payment, subject to the other conditions.
Illustrative example 5: Extension applicable to the company
A company expressly covered by Circular 7/2026 pays ₹2.4 lakh of otherwise deductible FY 2025–26 leave encashment on 12 November 2026, nine days before the 21 November extended date. Assume the evidence and return requirements are met; the 11f adjustment for this payment is nil.
Illustrative example 6: Net book-to-tax effect
Book profit before tax is ₹80 lakh. Add ₹7 lakh of current disallowance and deduct ₹4 lakh of eligible older payments. Profit after these two adjustments is ₹83 lakh before other adjustments.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Freeze book balances by employee and ledger account | Opening ledger and signed closing trial balance |
| 2 | Identify payments that actually discharge leave entitlements | Payroll and bank settlement evidence |
| 3 | Separate liability vintages and current-period expense | Employee-by-vintage movement register |
| 4 | Verify prior deductibility before claiming old payments | Filed computation and relevant orders or intimations |
| 5 | Record the correct section 139(1) deadline | Company classification and applicable circular |
| 6 | Split current payments on both sides of the cut-off | Dated settlement schedule |
| 7 | Match the four audit buckets | Final Form 3CD clause 26 extract |
| 8 | Tie 10f and 11f through the notified totals | Part A–OI and BP crosswalk |
| 9 | Check reversals and rebookings for duplicate effect | Voucher-by-voucher reconciliation |
| 10 | Archive proof for each return adjustment | Final computation, filed return and dated payment evidence |
Sixteen practitioner FAQs
1. Does the actuarial report prove payment?
It supports measurement of a book liability. Obtain independent evidence of actual discharge.
2. Can the company claim the entire provision after payment to some staff?
Allocate actual payments to settled liabilities; one employee's settlement does not establish payment of another's balance.
3. Do payroll journal dates control?
Use evidence that the liability was actually discharged; a journal posting alone is insufficient.
4. Can an opening liability be taken through 11f?
11f covers current P&L debits that are disallowable under clause (f). Reconcile opening amounts separately.
5. Does payment during FY 2025–26 always create an extra BP deduction?
Only to the extent the otherwise deductible amount was disallowed earlier and has not already been given effect.
6. Where do opening items still unpaid appear in Form 3CD?
Clause 26(A)(b), where previously disallowed and not paid during the year.
7. Where are timely current payments reported in Form 3CD?
Clause 26(B)(a), including qualifying post-year-end payments within the due date.
8. Can the audit report filing deadline stand in for the return deadline?
No. The proviso refers to the applicable section 139(1) return date.
9. Does a belated return move the payment cut-off?
No. Test the section 139(1) date applicable to the company.
10. Does the current-year post-close payment belong in 10f?
No. It is tested under the current-year proviso, not treated as an opening disallowance paid in the year.
11. What if the payment file bundles salary and encashment?
Separate amounts and reconcile the encashment component to the settlement evidence.
12. Can prior allowance be assumed from the opening trial balance?
No. Compare the prior tax computation and any subsequent order changing the amount.
13. How should reimbursements or reversals be treated?
Identify their legal and accounting character separately; they are not automatically leave encashment payments.
14. Can an employee's exemption decide the company's deduction?
No. The employee's exemption and the employer's deduction are separate inquiries.
15. Do the same dates apply to all section 43B items?
No. For example, the proviso excludes clause (h); keep each statutory category separate.
16. What amount should carry into next year's working?
Carry the remaining tax-disallowed amount by vintage, reconciled to the books and adjusted for actual settlements and documented reversals.
Official sources
Income-tax Act, 1961: section 43B Supreme Court: Exide Industries Form 3CD: clause 26 Notified ITR-6 for AY 2026–27 CBDT Circular 7/2026