Introduction: The Income Tax Act, 1961, has witnessed a significant amendment with the introduction of a new clause (h) in Section 43B. This clause specifically addresses payments to Micro or Small Enterprises (MSEs) and outlines crucial provisions impacting businesses. Let’s delve into the complete insight on this amendment.

Provision of section 43B of the Income Tax Act, 1961 Section 43B of the Income Tax Act, 1961 provides that certain sums shall be allowed to be deducted on payment basis.
Insertion of new clause (h) in section 43B Sum payable by the assessee to a micro or small enterprise beyond the time-limit specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 shall be allowed in the previous year in which sum is actually paid by him.
Classification of Enterprises Micro Small and medium (Both turnover and Investment Condition) Criteria Micro Small Medium
Investment in plant and machinery or equipment Upto Rs. 1 crore Above Rs. 1 crore to Rs. 10 crores Above Rs. 10 crore and Upto Rs. 50 crores
Turnover (Exports of goods or services or both, shall be excluded ) Upto Rs. 5 crores Above Rs. 5 crore and Upto Rs. 50 crores Above Rs. 50 crore and Upto Rs. 250 crores
Time Limit Whether agreement between buyer and supplier exist Whether due date of payment mentioned in agreement Date by which payment shall be made
Yes Yes On or before the date agreed but before forty-five days
Yes No Fifteen days
No NA Fifteen days
Meaning of Enterprises Industrial undertaking or other business concern engaged in the business of manufacturing or production of article listed in the first schedule of Industries (Development and Regulation) Act, 1951 or concern engaged in providing services
Applicability on the ‘traders’ Traders’ to get registration for UDHAYM  for limited purposes i.e. restricted only for Priority Sector Lending
UDHAYM Registration for Udhaym is not mandatory only the condition that to be full fill is turnover and investment criteria given above.
Job worker Job worker shall be considered manufacturer.
Year end provision /expenses on accrual basis If the services not rendered e.g. audit fees, section 15 of the MSMED Act shall not apply till the services are rendered.

If the services rendered payments will be allowed only in the year of payment if payment made beyond due date given in section 15 of the MSMED Act

Conclusion: The amendment to Section 43B brings a renewed focus on timely payments to Micro or Small Enterprises. Businesses must comprehend the criteria, time limits, and implications to ensure compliance. This comprehensive insight serves as a guide for navigating the intricacies of the amended provision and its impact on various aspects of business operations. Stay informed and proactive in adapting to these regulatory changes.

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March 2024