Introduction: Sec 43B(h) of the Income Tax Act, 1961, plays a crucial role in regulating payments to Micro and Small Enterprises (MSEs). With the recent amendments introduced by the Finance Act, 2023, it’s essential to delve into the intricacies of this provision and its impact on businesses. This analysis aims to dissect Sec 43B(h), exploring its applicability, compliance requirements, and implications for taxpayers, particularly concerning payments to MSEs.
Analysis of Sec 43B(h) of Income Tax Act, 1961
|
S. No. |
Reference | Issue |
| 1 | The Finance Act, 2023 | (It is applicable to the supplies/receipts of goods/services from 01/04/2023 onwards – i.e. all invoices raised on or after 01/04/2023 |
| 2 | Sec 43B(h) of IT Act | Applicable to Supplies from Micro & Small Enterprises |
| All invoices in the FY 2023-24 are to be paid within the time limit as per Sec 15 of MSMED Act, 2006 – Even if paid after the above time limit but before due date of filing return, it is disallowable u/s 43B(h) and will be allowed in the year of payment | ||
| 3 | Classification – MSME Notification S.O. 2119 (E) dated 26.06.2020 | Micro: Investment in Plant & Machinery or Equipments doesn’t exceed Rs.1 Cr and Turnover does not exceed Rs. 5 Cr |
| Small: Investment in Plant & Machinery or Equipments doesn’t exceed Rs.10 Cr and Turnover does not exceed Rs. 50 Cr | ||
| Note: Investments @ WDV as per Income Tax Act and Turnover as per GST. The Export of Goods/Services are to be excluded | ||
| 4 | Due date as per Sec 15 of MSMED Act, 2006 | The buyer has to pay to the supplier (before appointed date – 15 days from date following the date of acceptance) |
| If no agreement, within 15 days | ||
| If agreed credit period is 45 days or less, then on or before such agreed due date | ||
| If agreed credit period is more than 45 day, then within 45 days | ||
| Note: Due Date is to be calculated from the date of removal of objection, if any, by the Supplier where buyer has raised objections within 15 days | ||
| 5 | Sec 2(n) of MSMED Act, 2006 | 1. Supplier – being Micro or Small Enterprise, who has filed Memorandum for Registration |
| 2. Supplier – being National Small Industries Corporation / Small Industries Development Corporation of a State/UT | ||
| 3. Companies/Co-op Societies/Trusts registered under any law and engaged in selling goods produced by micro or small enterprises and rendering services provided by micro or small enterprises | ||
| Note: Except the above traders (referred in Point 3), all other Traders (wholesale or retail) are not covered | ||
| 6 | Office Memorandum No. 2(18)/2007-MSME(pol) Date: 26-08-2008 | MSME should mention their Udyam Registration number in Invoices/Bills. The Buyers can verify the same in the Portal |
| 7 | 7 Sec 16 & 23 of MSMED Act, 2006 | In case of delayed payments to MSME Suppliers, the buyer is liable to pay compound interest with monthly rests at three times of bank rate notified by the RBI – irrespective of anything in any agreement/ provisions in any law. This interest is not deductible under income tax |
| 8 | Sec 44AD, 44ADA & 44AE | Not applicable as the provisions of Sec 28 to 43C are not applicable to those offering income u/s 44AD/44ADA/44AE |
| 9 | Unregistered Enterprises | As per SC decision in the case of Gujarat State Civil Supplies Corporation Ltd. Vs Mahakali Floods Pvt Ltd & Anr (2022), only registered MSMEs can claim the benefits of act |
| 10 | Wholesales and Retail Traders | It is applicable only to Manufacturers/Service Providers – NOT Traders |
Conclusion: In conclusion, the analysis of Sec 43B(h) sheds light on its significance in the context of payments to Micro and Small Enterprises. With clear guidelines on compliance requirements and implications for delayed payments, taxpayers must navigate this provision diligently. By understanding the nuances of Sec 43B(h) and adhering to its provisions, businesses can ensure statutory compliance and foster healthy relationships with MSEs, contributing to a conducive business environment.
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