Introduction
The Finance Act 2023 inserted clause (h) to section 43B, which stipulates that any sum owed to Mico, Small enterprises for goods supplied or services given may be deducted in the same year if it is paid within the deadline stipulated by the Micro, Small and Medium Enterprises Development Act 2006.
Section 43B :- Certain Deduction to be only the actual payment
Clause (h) has been inserted in section 43B which reads as under:-
Any sum payable by the assessee to Micro or Small enterprises beyond the time limit specified under section 15 of the Micro, Small and Medium enterprises Development Act, 2006, shall be allowed irrespective of the previous year in which such liability to pay such sum was incurred by the assessee according 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.
Difference of Other Clauses of Section 43B with Clause (h)
Section 43B applies to sums outstanding as of year end and paid off after 31st March of the financial year but before filing of Income Tax under section 139(1) of the Income Tax Act for the relevant financial year.
Clause (a) to clause (g) to section 43B allows deduction of the year end outstanding on an accrual basis if the payment is made on or before the due date of filing the ITR.
The newly inserted clause (h) to this section provides that any sum payable payable to the assessee to micro or small or enterprises beyond the time limit specified in section 15 of the MSME Act shall be allowed in the previous year in which such sum is actually paid.
Classification As Micro, Small and Medium Enterprises
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Micro Enterprises:- |
Net Investment in plant and machinery or equipment does not exceed Rs 1 core and Net turnover does not exceed Rs 5 crores. |
| Small Enterprises:- | Net Investment in plant and machinery or equipment does not exceed Rs 10 crores and Net Turnover does not exceed Rs 50 crores. |
| Medium Enterprises:- | Net Investment in Plant and machinery or equipment does not exceed Rs 50 crores and Net turnover does not exceed Rs 250 crores. |
Computation of Investment
Calculation of investment in Plant and Machinery or equipment shall be linked to the ITR of the previous year filed under IT Act.
In case of the new enterprises, where no prior ITR is available , the investment in plant and machinery shall be based on the self declaration of the promoter of the enterprises.
Computation of Turnover
The Turnover shall be taken form the GSTIN which shall exclude the turnover from export of goods and services.
Time Limit prescribed under section 15 of the MSMED Act
Section 43B(h) refers to the limitation period specified under section 15 of the MSMED Act. MSMED Act provides that where any supplier supplies any goods or renders any services to the buyer, the buyer shall make the payment thereof on or before the date agreed upon between him and the supplier in writing, which shall in case exceed 45 days.
In case there is no agreement, then the payment shall be done before the appointed day.
Meaning Of Appointed Date
Appointed date is relevant only if the buyer and the seller have not agreed to any due date for payment in writing.
As per section 2(b) of MSMED Act, appointed date means the day immediately after the expiry of the period of fifteen days from the date of acceptance or the date of deemed acceptance of any goods or any services by a buyer from a supplier.
Date of Acceptance
Date of Acceptance means the date of actual deliver of the goods or services from the buyer.
Where any objection is made by writing by the buyer regarding the acceptance of goods or the services within 15 days from the day of delivery of goods or the rendering of the services, the date of acceptance means the day on which the objection is removed from the supplier.
Where no objection is made in writing by the buyer regarding the acceptance of any goods or services within 15 days from the date of delivery of goods or services, the date of the actual delivery of goods or the rendering of the services.
Disclosure of Unpaid Amount
Section 22 of the MSMED Act provides that disclosure is to be provided of any unpaid amount with interest to MSME Suppliers in annual accounts.
Section 22 of the MSMED Act provides that where nay buyer is required to get its annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in the annual statement of accounts:-
1. Outstanding amount of interest payable which is unpaid to the MSME supplier at the year end.
2. Interest and outstanding amount paid to the buyer to MSME supplier during the year.
3. Interest due and payable to the MSME supplier for outstanding amount which is paid late without interest.
4. Interest accrued and remaining unpaid to MSME supplier for the year.
Further more the tax auditor is required to report the unpaid dues to the micro and small enterprises in FORM 3CD of the tax audit report.
Disallowance under Section 43B(h) applicable if the supplies are made before obtaining Udyam
Section 43B(h) will not apply with respect to payments for supplies made before the date of Udyam Registration. The assessee would be regarded as micro or small enterprises only from the date of obtaining such registration as Udyam .
Penalties for Failure to pay MSMEs within the time frame. In case of the late payment to an MSME, interest is applicable.
Rate of Interest: – Compound interest at the times of the bank rate notified by the Reserve Bank Of India.
Date from which Interest is payable:- The interest shall be payable from the appointed date or the date as per the agreement, as the case may be.
Exclusions from Section 43B(h) of the Income Tax Act, 1961 The section is not applicable on the following:-
1. If the supplier is not registered under MSMED Act,
2. If the supplier is registered under the category of Medium Enterprises.
3. If the supplier is registered under the category of traders under MSMED Act,
4. If the assessee files the income tax return under presumptive taxation i.e. section 44AD, 44ADA , 44AE.
Conclusion: The inclusion of clause (h) in section 43B by the Finance Act 2023 represents a pivotal step towards enhancing the financial ecosystem for Micro and Small Enterprises (MSEs) within India. By incentivizing timely payments through tax deductions, the government aims to alleviate the cash flow challenges faced by MSEs, thereby promoting their sustainability and growth. Furthermore, this amendment aligns with the broader objectives of the Micro, Small and Medium Enterprises Development Act, 2006, ensuring that MSEs receive the support and recognition they deserve in the national economy. Ultimately, this move not only benefits the MSEs but also strengthens the economic fabric of the country by fostering a culture of reliability and financial discipline among businesses.
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