Introduction: In a conversation between fictional characters Arjuna and Krishna, the analogy of Holika Dahan is used to explain the introduction of Section 43B(h) of the Income Tax Act, 1961. This section mandates timely payments to Micro and Small Enterprises, akin to the festival’s celebration of timely actions and responsible behavior. The provision aims to ensure financial stability for small businesses by requiring payments within specified timelines, mirroring the harmony and joy of a colorful Holi celebration.
Arjuna (Fictional Character): Krishna, as taxpayers immerse themselves in Holika dahan & the colourful festivities of Holi this week, I’m also curious about the upcoming changes with the introduction of Section 43B(h) of the Income Tax Act, 1961 applicable from April 1, 2023. Could you please elaborate on that?
Krishna (Fictional Character): Arjuna, Holika Dahan, signifies the victory of Good over Evil. The new clause “h’ to Section 43B can also be compared with this festival where the buyer has to make payments to Micro & Small Enterprises in time which burns(dahan) their Cash and Micro and Small Sellers who get their payment in time enjoy the joyful and colourful Holi. The introduction of Section 43B(h) in the Income Tax Act, 1961, signifies a move towards responsible business practices, similar to celebrating Holi with not only colours but with care and consideration for others. This provision mandates the deduction of expenses related to payments to Micro and Small Enterprises only if these payments are made within the timelines specified by the Micro, Small, and Medium Enterprises Development (MSMED) Act. Specifically, it requires payments to be made within 45 days as per written agreements, or within 15 days in the absence of such agreements, aiming to ensure timely financial receipts for Micro and Small Enterprises. The Micro and Small Enterprises can thus enjoy the perks of business in harmony just as small children enjoy the colourful Holi playing with colours. Just as people cheer a lot and make a lot of noise at the time of Holika Dahan, similarly many people opposed the introduction of this new clause, but this had no effect on Income Tax department as this clause is a boon for small business.
Arjuna (Fictional Character): Krishna, which small businesses are eligible to enjoy the colourful and joyous Holi benefits under the Income Tax provisions?
Krishna (Fictional Character): Arjuna, Micro and Small businesses that have obtained UDYAM registration are welcomed to partake in the colourful and joyous Holi festivities as per the Income Tax Department’s guidelines. To be classified as a Micro Enterprise, the business should have a turnover of up to Rs. 5 Crore and an investment of up to 1 Crore. For Small Enterprises, the turnover should be up to Rs. 50 Crore with an investment of up to 10 Crore. However, it’s important to note that mere eligibility is not sufficient; businesses must apply for UDYAM registration to be officially recognized as MSMEs and avail the benefits under Section 43B(h) of the Income Tax Act.
Also, the Micro and Small Enterprises should only be Manufacturers or Service Providers to avail the benefits of this section.
Arjuna (Fictional Character): Krishna, Which Expenses will be disallowed and will the colour of disallowance be permanent?
Krishna (Fictional Character): Arjuna, the Applicability and effect of 43B(h) shall be as under:
| Date of Invoice | Remark |
| Before 1st April 2023 | No Holi for these transactions as colours of 43B(h) only available from 1st April 2023. |
| From 1st April 2023 to 15th Feb 2024 | If Payment for these invoices are made before 31st March 2024, then dry colour be applied to buyer and deductions for these expenses will be allowed in FY 23-24. If made after 31st March 2024 then dark colour will applied to buyers which can only be washed once the payment is made i.e. deduction will be available in the year of payment. |
| From 15th Feb 2024 to 31st March 2024 | If payment is made in 15/45 days, then Holi can be played by buyers this year and if payment is made beyond 15/45 days then Holi shall be played in the year of payment, i.e. deduction will be available in the year of payment. |
Arjuna (Fictional Character): Krishna, what should one learn from this?
Krishna (Fictional Character): Arjuna, Income Tax Department has organized a colourful and joyous Holi for small business with the introduction of new clause to Section 43B. The other businesses shall not see this new clause as a threat as the one’s who make regular payments will not be troubles and they can continue to enjoy the colours of joyous Holi. The Business are tapping various sources to arrange funds for the Micro and Small Vendors Payments before 31st March 2024.
Conclusion: Section 43B(h) brings a paradigm shift in tax provisions, emphasizing the importance of timely payments to Micro and Small Enterprises. Eligible businesses can enjoy the benefits by obtaining UDYAM registration and adhering to the specified turnover and investment criteria. The provision’s implementation timeline and its implications for expense deductions underscore the significance of timely compliance. Overall, it heralds a positive change, promoting responsible business practices and fostering financial inclusivity for Micro and Small Enterprises.
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