Actual payment basis for business deductions governs taxes, welfare contributions, interest, railway dues, and MSME payments.

Deduction of specified business liabilities is allowed only on an actual payment basis, so an otherwise allowable expense is deductible in the tax year of payment and not when the liability arises. The rule applies to taxes, duties, employer contributions to welfare funds, leave encashment, bonus or commission, specified interest, railway payments, and delayed MSME dues, subject to limited exceptions. Interest converted into a loan, advance, debenture, or similar instrument is not treated as actually paid, and employee contributions are governed by the separate statutory deposit rule.

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