“Section 43B of the Income Tax Act amended: Deductions for payments to micro and small enterprises only if made within MSMED Act’s time limits.”
Section 43B of Income Tax Act, 1961: Certain deductions to be allowed on actual payment basis only
The Finance Act, 2023 has amended the section 43B of Income Tax Act,1961 to provide that payments made to micro and small enterprises shall be allowed as deduction computation of total income only when such payment is made within the time limit as specified in section 15 of the MSMED Act,2006.
A new proviso has been inserted to provide that the proviso which states payment shall be allowed as deduction even if payment is made before the due date of filing the return will now after the amendment shall not apply to payments made to micro and small enterprises.
Section 15 of MSMED Act, 2006: Liability of buyer to make payment
Section 15 provides that a buyer shall make payment supplier for goods or services received within a period as agreed between them or within the appointed date.
The Proviso provides that the period agreed between the buyer and seller shall not exceed 45 days from the day of acceptance or deemed acceptance.
Illustration 1
Supplier: Mr A
Buyer: Mr B
Date of acceptance: 1.1.23
Due date of payment as per Section 15 of MSMED Act,2006: 14.2.23
Actual date of payment: 10.2.23
Amount : Rs. 1,00,000
Solution
Payment Rs 1,00,000 made to Mr A shall be allowed as deduction in computation of total income as the payment has been made within the due date as specified in section 15 of MSMED Act, 2006 I.e the payment has been made on 10.2.23
Illustration 2
Supplier: Mr A
Buyer: Mr B
Date of acceptance: 1.1.23
Due date of payment as per Section 15 of MSMED Act,2006: 14.2.23
Actual date of payment: 15.2.23
Amount : Rs. 1,00,000
Solution
Payment Rs 1,00,000 made to Mr A shall not be allowed as deduction in computation of total income as the payment has not been made within the due date as specified in section 15 of MSMED Act, 2006 I.e the payment has been made after 14.2.23.
Illustration 3
Supplier: Mr A
Buyer: Mr B
Date of acceptance: 1.3.23
Due date of payment as per Section 15 of MSMED Act,2006: 14.4.23
Actual date of payment: 10.4.23
Amount : Rs. 1,00,000
Solution
Payment Rs 1,00,000 made to Mr A shall be allowed as deduction in computation of total income as the payment has been made within the due date as specified in section 15 of MSMED Act, 2006 I.e the payment has been made upto 14.4.23.
Illustration 4
Supplier: Mr A
Buyer: Mr B
Date of acceptance: 1.3.23
Due date of payment as per Section 15 of MSMED Act,2006: 14.4.23
Actual date of payment: 15.4.23
Amount : Rs. 1,00,000
Solution
Payment Rs 1,00,000 made to Mr A shall not be allowed as deduction in computation of total income as the payment has not been made within the due date as specified in section 15 of MSMED Act, 2006 i.e the payment has been made on 15.4.23 which is after the due date of payment.
It is important to note that although the payment has been made before the due date of filing the return, the amendment to section 43B specifically provides this proviso shall not apply in the case of payment made to micro and small enterprises.
Author Bio
YOU HAVE GIVEN EXAMPLE OF FINANCIAL YEAR 2022-23 WHEREAS THIS RULE WILL BE APPLICABLE W.E.F. 01.04.2023 ON WARDS (A.Y. 2024-25). THEREFORE ANY DELAY OF PAYMENTS OF F.Y. 2022-23 ARE NOT COVERED IN NEW RULE.
Well explained
clarification required who are classified as MSME
Sir,
As per the Amented 43B provision, even if the payment is made after 45 days but before 31st March it can be allowed on the basis of Actual payment. But however in your Illustration NO.2 its contradictory. Please clarify
Good explanation with example