Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Further, the proviso of this section allows deduction on accrual basis, if the amount is paid by due date of furnishing of the return of income.
2. In order to promote timely payments to micro and small enterprises, it is proposed to include payments made to such enterprises within the ambit of section 43B of the Act. Accordingly, it is proposed to insert a new clause (h) in section 43B of the Act to provide that 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 (MSMED) Act 2006 shall be allowed as deduction only on actual payment. However, it is also proposed that the proviso to section 43B of the Act shall not apply to such payments.
3. Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days. Thus, the proposed amendment to section 43B of the Act will allow the payment as deduction only on payment basis. It can be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.
4. This amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years.
[clause 13]
Extract of relevant clause of Finance Bill 2023
Clause 13 of the Bill seeks to amend section 43B of the Income-tax Act relating to certain deductions to be only on actual payment.
It is proposed to amend clause (da) of the said section, to substitute the expression “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company” with “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf”.
It is further proposed to insert a new clause (h) to the said section so as to provide that 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 shall be allowed as deduction only on actual payment.
It is also proposed to amend the proviso to the said section so as to not allow the deduction on accrual basis, if the amount is paid by due date of furnishing the return of income in the case of micro or small enterprises.
It is also proposed to substitute clause (e) and clause (g) of Explanation 4 to define the expressions “micro enterprise” and “small enterprise” for the purposes of the said section.
These amendments will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
13. Amendment of section 43B.
In section 43B of the Income-tax Act, with effect from the 1st day of April, 2024,–
(i) in clause (da), for the words “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company”, the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf” shall be substituted;
(ii) in clause (g), after the word “assets,”, the word “or” shall be inserted;
(iii) after clause (g), the following clause shall be inserted, namely:–
“(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,”;
(iv) in the proviso, after the words “nothing contained in this section”, the brackets, words and letter “[except the provisions of clause (h)]” shall be inserted;
(v) in Explanation 4,––
(I) for clause (e), the following clause shall be substituted, namely:–
‘(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;’;
(II) for clause (g), the following clause shall be substituted, namely:–
‘(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.’.
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