Introduction: Adhering to Section 43B(h) of the Income Tax Act 1961 is crucial to avoid penalties for delayed payments to micro and small enterprises. However, these regulations pose challenges, including working capital constraints and disrupted business relationships. Here, we delve into the negative impacts and offer actionable strategies to navigate compliance effectively.
As per the Income tax act 1961, Under Section 43B(h) :
Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—
Following clause (h) shall be inserted after clause (g) of section 43B by the Finance Act, 2023, w.e.f. 1-4-2024:
(h) any 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 (27 of 2006),
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
(e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006);
(g) “small enterprise” shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).
So every Enterprises have to be release payment to the Small and Micro Enterprises within 15 days where payment terms are not decided and within 45 days where payment terms decided.
Negative Impact on the Industries:
1. Due to this changes, there is huge crisis of Working capital faced by the enterprises.
2. Large and Medium enterprises are going to stop giving orders or stop taking services from Small and Micro level enterprises.
3. Small and Micro Enterprises are struggling for getting new businesses.
Business shall not be suffered due to Changes of Government policies.
So there is a way to avoid such negative impacts on the businesses, One can do suggested as below mentioned to deal with the Small and Micro Level Enterprises.
1. They can collect declaration from the Enterprises that they are in the business of trading activities and collect fresh MSME Certificates.
2. They can provide declaration that they are not registered under MSME.
3. Vendors who provided Capital goods, Then it is not applicable to such Vendors.
If Enterprises are not able to make payment as per Section 43B(H) of the Income tax Act 1961,Then such impact will be as per below mentioned:
1. any 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 (27 of 2006), shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
Provided that nothing contained in this section [except the provisions of clause(h)] shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.
So, for the time being, there is blocking up of Working capital of the Large and Medium enterprises if they follow the Section 43B(h) of the Income tax act 1961 Or They can get some relief of Working capital by way of above mentioned ways suggest.
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