Introduction: Navigating the complexities of MSME (Micro, Small & Medium Enterprises) laws is crucial for businesses. This Q&A-style guide simplifies the nuances, covering classification criteria, payment obligations, interest implications, and the recent amendment in the Income Tax Act. Understanding these aspects is vital for businesses seeking compliance and benefits in the evolving MSME landscape.
| S.N. |
QUESTION |
ANSWER |
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| 1. | Meaning / Full Form of MSME ? | MICRO, SMALL & MEDIUM ENTERPRISES | ||||
| 2. | How to Classify Enterprises ? | Basis of Classification
First:- Investment in Plant & machinery and Second :- Turnover Note:- both the conditions should be satisfied. |
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| 3. | Which is MICRO Enterprises ?
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The Enterprises which satisfy both the conditions given below:-
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| 4. | Which is SMALL Enterprises ? | The Enterprises which satisfy both the conditions given below:-
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| 5. | Which is MEDIUM Enterprises ? | The Enterprises which satisfy both the conditions given below:-
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| 6. | In how many days payment is to be made to supplier which is Micro & Small Enterprises
(As per Section 15 of MSMED Act, 2006 Payment period should not exceed 45 days) |
Case 1 :- Where there is no agreement of payment between buyer and Seller –
Ans:- 15 Days from the Receipt of Goods / Services Case 2 :- Where there is an agreement of payment between buyer and Seller for 30 Days Ans:- 30 Days from the Receipt of Goods / Services Case 3 :- Where there is an agreement of payment between buyer and Seller for 90 Days Ans:-45 Days from the Receipt of Goods / Services |
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| 7. | Is any Interest payable on delayed payment | Yes,
Interest payable is 3 times of Bank Rate notified by RBI, and compounded monthly from the payment due date i.e. Appointed day as per MSMED, Act, 2006. |
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| 8. | Is the provision of Interest Payable to Micro & Small Enterprises | Yes,
As per section 22 of the MSMED, Act, 2006 if accounts are required to be audited under any law, then Principal and Interest due at the end of financial year is required to be reported. |
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| 9. | Deduction of Interest paid by the Buyer to Micro & Small Enterprises | NO,
Section 23 & 24 of the MSMED Act, 2006 says that interest will not be allowed as deduction for computation of Income, which is overriding Income Tax Act, 1961. |
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| 10. | Is registration under MSME / UDYAM is required to get benefit of these provisions? | Yes | ||||
| 11 | Is it required to give/ communicate the registration under MSME / UDYAM to the buyer ? | Yes,
The supplier may communicate his MSME / UDYAM to the buyer by way of Email/ Whatsapp etc. But it is advisable to mention it on Every Invoice for Supply of Goods/ services. |
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| 12. | What is Latest Change in Income Tax Act, 1961 in respect of Micro & Small Enterprises | The Budget/ Finance Act, 2023 introduced Section 43B(h) in the Income Tax Act, 1961 | ||||
| 13. | What will be the implication of change in Income Tax Act, 1961 | > This provision will be effective from the Invoices issued on and after 01-04-2023
> This is big relief for the Micro and Small Enterprises but not Medium Enterprises. > It is hard for those delaying payments. > Expenditure incurred to Micro and Small Enterprises which is overdue will be allowed as Deduction in the year in which it is actually paid. (Proviso to Section 43B is not applicable) > Interest paid to Micro and Small Enterprises will not be allowed as deduction for computation of Income under Income Tax Act, 1961 > These provisions are applicable for every assesse having Income under the Head Business/ Profession but not for those declaring Income under Section 44AD & 44ADA. |
Conclusion: Staying informed about the latest changes in MSME laws is pivotal for businesses to ensure compliance and leverage benefits. This guide, compiled in a Q&A format, serves as a concise reference for understanding classifications, payment obligations, interest implications, and the impactful amendments in the Income Tax Act. By embracing these insights, businesses can navigate the regulatory landscape effectively, fostering financial prudence and adherence to legal requirements.
Author Bio
I want some clarifications regarding new section 43B of Income tax act
I am Garments MANUFACTURERS purchase fabrics from traders whose turnover is less than 10 crores…is this section applies to me and I have to pay within stimulating period
Traders are not eligible to take this benefit even after they have udyam regn.
some clarifications require for change in Income tax act…newly inserted section 43B
1.Defination of MSME..
I am GARMENT MANUFACTURER…purchasing fabrics from Traders having turnover less than 10 crores…Is this section applies to me or not…even they have UDHYAM ADHAR NUMBER..
Please reply as mostly Garment MANUFACTURERS have same problem..
There are government memo dt 1st September 2021 that traders can get Udyam ADHAR number with some restrictions…accordingly we purchase goods from traders,this section will not apply
Very informative article. Provides required clarity on MSME provisions.