Section 43D of the Income Tax Act
Income-tax Act, 2025: s.56
Section 43D of the Income-tax Act, 1961 corresponds to section 56 (Special provision in case of interest income of specified financial institutions) of the Income-tax Act, 2025.
Read section 56 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 43D is CIT v. Vasisth Chay Vyapar Ltd. (330 ITR 440), cited in 125 of the 155 judgments on BharatTax that turn on this section.
Leading authorities on Section 43D
Interest income is taxable under the mercantile system of accounting even if it is not actually recovered, provided there is a right to receive it. The decision also touches upon the treatment of bad debts and provisions for doubtful debts under Section 36(1)(viia).
Banks can claim tax deductions for broken period interest on Held to Maturity (HTM) government securities if classified as stock-in-trade, treating it as revenue expenditure, not capital expenditure.
Unpaid interest on loans where principal/interest remained unpaid for 90 days, classified as non-accrual loans, when reversed to a Reserve for Doubtful Interest (RFDI) account, and subsequent interest accruals credited to RFDI instead of the profit and loss account, is taxable on a net basis of accruals less recoveries.
The ITAT Mumbai in M/S Novozymes South Asia Put Ltd. v. ACIT (2018) has allowed employee stock option plans (ESOPs) as a deduction, recognizing them as an effective tool for employee reward and retention.
