The introduction of Section 43B(h) under the Income Tax Act brings significant changes for Micro, Small, and Medium Enterprises (MSMEs). Effective from April 1, 2023, these new provisions aim to streamline the payment and deduction processes, ensuring timely payments to MSME suppliers. This FAQ article addresses common queries regarding the implications of this amendment, helping businesses navigate the new regulatory landscape.
Q. 1. When will the amendment u/s 43B(h) of the IT Act come into effect?
Ans. The amendment has taken effect from April 1st, 2023 and therefore it is applicable for financial year 2023-24 and onwards.
Q.2 The amount outstanding to a MSE Supplier as on March 31, 2024 is paid after due date specified under MSMED Act 2006, however paid just before the due date of furnishing the return of income u/s 139(1) of the IT Act. Whether such amount will be allowable as deduction in the tax return of FY 2023-24?
Ans. No, the first proviso to section 43B of the IT Act allows deduction of those dues in respect of which payment is made after the end of the financial year but before due date of filling of income tax return. However, such benefit is not available to the taxpayer making payment to Micro and Small enterprises. Thereby unless such an amount is paid within due dates specified in section 15 of MSMED Act, amount should not be allowed as deduction in tax return of FY 2023-24.
Q.3 What is there is no agreement between the buyer and seller?
Ans. If there is no such written agreement, the section mandates that the payment shall be made within 15 days.
Q.4 What if interest is not paid within time limit?
Ans. If payment is not made within the time limit specified, then, the taxpayer shall be liable to pay compound interest with monthly rests to the supplier on the amount, from:
i. the appointed day or,
ii. the day on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.
Q.5 Whether any disallowance will be attracted u/s 43B(h) in case the payment is made beyond the time permitted under MSMED Act but within the same financial year?
Ans. No, there will not be any disallowance since payment is made in same financial year and is not outstanding at the end of the year.
Q.6 Who can enjoy the benefits under the MSMED Act?
Ans. In order to avail the benefits under the MSMED Act, the supplier should be registered having Udyam Registration no. under MSMED Act, 2006 as a micro and small enterprises as a manufacturer or service provider.
Q.7 A taxpayer has purchased and received goods from an MSE Supplier on Mar 1, 2024. After verification of goods, he has raised a dispute with the MSE Supplier on Mar 5, 2024, stating that certain goods are defective. The dispute gets resolved between the parties on March 30, 2024. What would be the due date for payment for the taxpayer assuming there is no written agreement specifying due date of payment.
Ans. In this case, since there is no agreement between the taxpayer and the MSE Supplier specifying the date of the payment, the due date of payment would be 15 days from date of receipt if goods i.e. March 15, 2024. However, since the taxpayer raised a dispute within 15 days from the date of receipt of goods, the payment now needs to be made within 15 days from the date from which the issue is resolved. Therefore, in current case, the payment needs to be made to MSE Supplier by April 13, 2024.
Q.8 In the above FAQ No. 7, suppose the dispute is raised on March 20, 2024, by the taxpayer i.e. after 15 days from date of acceptance of goods. How would the provision of 43B(h) be construed?
Ans. Considering that the due date for payment was 15 days from the date of receipt of goods i.e. March 15, 2024, and the taxpayer did not make the payment till the said date, the amount should be disallowed u/s 43B(h) of the act if the amount is outstanding as on March 31, 2024. It should be noted that since the dispute was raised after the expiry of 15 days, the benefit of extension of 15 days from date of resolution of dispute is not available.
Q.9 Will the provisions of Section 43B(h) of the IT Act be attracted if the buyer is opting presumptive taxation under section 44AD/ADA of the IT Act?
Ans. The provision of section 44AD of IT Act overrides the provision of section 28 to 43C of the IT Act and therefore if the buyer is opting for presumptive taxation, any payment to Micro or Small enterprises will not attract disallowance u/s 43B(h) of the IT Act.
Q.10 If the buyer of goods or services keeps an amount of retention money in accordance with the aggregate with the MSE Supplier, whether disallowance will be attracted u/s 43B(h) of the IT Act by contending that retention amount is not paid within time permitted under MSMED Act?
Ans. The MSMED Act states that payment needs to be made to MSE Supplier within time limit as specified. Thereby, even if amount is retained by the buyer of goods or services in accordance with terms agreed with MSE Supplier, such retained amount should be paid to supplier within the time limits as specified.
Q.11 Whether the disallowance would be attracted on amount inclusive of GST or only on the amount of principal amount?
Ans. Section 43B(h) uses the term “any sum payable by the assessee”. Hence entire amount will be subject to disallowance u/s 43B (h) which is charged to profit and loss account.
Q.12 What if the expenditure has been capitalized in the books of taxpayer and there is delay in payment to MSE vendor which remained outstanding at the year end?
Ans. Only those expenditure which are claimed as deduction to compute the income of taxpayer should be subject to provisions of section 43B(h). Since capital expenditure is not claimed by taxpayer while computing income, the provisions of section 43B(h) is not applicable to such capital expenses.
Q.13 What would be treatment of interest in case of delayed payment to supplier?
Ans. In case of delayed payments, interest will be applicable in accordance with MSMED Act, which would be disallowed to the buyer while computing his income chargeable to tax. Such disallowance of interest expense is irrespective of the fact that whether corresponding principal amount is paid in the same financial year or not.
Q.14 Will the provisions of 43B(h) apply to traders registered under MSMED Act 2006?
Ans. No, MSMED Act defines an ‘enterprise’ as an undertaking engaged in manufacturing or production of goods or engaged in providing or rendering of any service. Thereby traders are not covered in this definition and out of preview of MSMED Act.
Q.15 MSME registered entities who are micro and small enterprises having opening balances, whether that will be covered or not?
Ans. No, opening balances due to such entities will not be covered during the FY 2023-24.
Q.16 Is section 43B(h) only applicable to the entities who are getting audited under the Income tax Act?
Ans. Section 43B(h) is applicable to all the entities irrespective of books being audited.
Conclusion: Understanding the new provisions of Section 43B(h) is crucial for businesses dealing with MSMEs. These FAQs provide clarity on the various aspects of the amendment, including payment deadlines, deduction eligibility, and the impact of disputes. By adhering to these guidelines, businesses can ensure compliance with the IT Act, avoid disallowances, and foster better relationships with MSME suppliers. The effective implementation of these provisions will contribute to the overall growth and stability of the MSME sector in India.
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Sir, Q-11 i need some clarification. Any sum payable by the assesses means total invoice value. But in Profit and loss account we will show only basic amount and GST will be taken separately in books.
Both are not same. please clarify sir.
I understand your concern!
You’re correct that the total invoice value includes both the basic amount and GST, but in the Profit and Loss account, GST is shown separately.
For Section 43B(h), the disallowance is attracted on the “sum payable” by the assessee. In this case, “sum payable” refers to the basic amount payable to the MSME supplier, excluding GST.
The GST component is not considered for disallowance under Section 43B(h) because it’s a tax collected by the assessee on behalf of the government.
So, to clarify:
– Total invoice value = Basic amount + GST
– Disallowance under Section 43B(h) applies only to the basic amount payable to the MSME supplier, excluding GST.
Hope this clears up any confusion!
Supplier is registered as manufacturer in MSMED Act 2006 as small enterprises which is main activity . but also has trading activity, will MSMED Act 2006 applicable for supply as trader
The MSMED Act, 2006, applies to enterprises engaged in manufacturing or production of goods, and also to enterprises providing services.
In your case, the supplier is registered as a manufacturer under the MSMED Act, 2006, which means they are primarily engaged in manufacturing activities.
However, if they also have a trading activity, the MSMED Act, 2006, may not apply to those trading activities.
To determine if the MSMED Act, 2006, applies to the supply made by the trader, consider the following:
1. Is the supply made in the course of their manufacturing business? If yes, then the MSMED Act, 2006, may apply.
2. Is the supply made in the course of their trading business? If yes, then the MSMED Act, 2006, may not apply.
It’s essential to examine the specific circumstances and the nature of the supply to determine if the MSMED Act, 2006, applies.
sir,
A Doctor maintained hospital and pharmacy Stores two concerns single pan tax audit itr filed every year
professional income Gross receipts rs:80 lacs
sales turnover of pharmacy business rs:150 lacs f.y.23-24 gst registered
assessess purchase of medicines from gst registered traders all transactions credit based for pharmacy business and hospital material purchase transaction on credit based
outstanding balance as per hospital rs:20 lacs
outstanding balance as per pharmacy Stores rs:40 lacs f.y.23-24
question:
repayment clause 15/45 and sec 43 b (h) both provisions applicable for hospital and pharmacy Stores.
Assuming all other conditions are satisfied i.e. supplier of hospital materials and pharmacy items has taken registration under MSMED Act, provisions of 15/45 and sec. 43B(h) applicable to both hospital and pharmacy business.