In the ever-evolving landscape of taxation, staying abreast of amendments and additions to existing provisions is crucial for businesses. One such recent addition is Section 43B(h), which was inserted through the Finance Act, 2023 in the Income Tax Act, 1961. Section 43B(h) states 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 only in computing the income of the previous year in which the sum has been actually paid.
Applicability and Timeline:
– Section 43B(h) is applicable from A.Y. 2024-25 onwards.
– It is not applicable for transactions pertaining to on or before 31st March, 2023.
Due Dates for Payments:
– If there is no written agreement, payments must be made within 15 days from the date of acceptance or deemed acceptance.
– If there is a written agreement, the payments must be made within 45 days from the date of acceptance or deemed acceptance.
Micro and small enterprises:
|
Criteria |
Micro | Small |
| Investment in Plant and Machinery or Equipment | Not more than Rs. 1 Crore | Not more than Rs. 10 Crore |
| Annual Turnover | Not more than Rs. 5 Crore | Not more than Rs. 50 Crore |
Definitions:
– Buyer: Refers to anyone buying goods or receiving services from a supplier for consideration.
– Supplier: A micro or small enterprise that has filed a memorandum with the authority under section 8(1).
Supplier Criteria:
– Section 43B(h) is applicable to amounts payable to micro and small enterprises that are
-
- manufacturers;
- service providers.
– It does not apply to amounts payable to
-
- medium enterprises;
- unregistered MSEs;
- traders, as their registration on the UDYAM portal is solely for the purpose of priority sector lending.
Applicability to Goods and Services:
– Section 43B(h) is applicable for amounts payable for goods and services.
– It does not apply to
-
- actionable claims money;
- interest on loans;
- salary payments;
- capital goods.
Exceptions and Overriding Effect:
– Section 43B(h) does not apply if the buyer is filing income tax returns under sections 44AD, 44ADA, or 44AE (Presumptive Taxation).
– These sections have an overriding effect over sections 28 to 43C, making Section 43B(h) inapplicable in such cases.
GST Implications:
If the amount payable to MSE is inclusive of GST, disallowance is limited to the amount exclusive of GST, as GST is never claimed as an expense in case the said GST component is claimed as ITC.
However, if the buyer refrains from claiming input tax credit under GST and regards it as an expenditure in its Profit and Loss account, deduction against it shall be permitted only based on payment.
Illustrations:
| Sr. No. | Agreement made | Purchase date | Payment date | Expense allowed in F.Y. 2023-24 |
| 1 | Yes | 01.04.2023 | 31.03.2024 | Yes |
| 2 | Yes | 01.03.2024 | 10.04.2024 | Yes |
| 3 | No | 10.03.2024 | 10.04.2024 | No |
| 4 | Yes | 15.03.2024 | 17.05.2024 | No |
| 5 | No | 01.03.2024 | 31.03.2024 | Yes |
Conclusion: The incorporation of Section 43B(h) into the Income Tax Act, 1961, marks a significant move towards enhancing the financial discipline and timely payment culture among businesses dealing with Micro and Small Enterprises. By linking the tax deductibility of payments to actual payment dates, the amendment aims to alleviate the cash flow issues faced by MSEs due to delayed payments. Businesses must adapt their payment processes and maintain diligent records to comply with this provision. It is advisable for businesses to consult tax professionals to navigate the complexities of Section 43B(h) and align their practices with the new legal requirements, ensuring both operational efficiency and regulatory compliance.
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Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.
The author can also be reached at [email protected].
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Sir, One Question, IF Buyer is registered on later date say goods sold on 1st feb and got registered on 15 th feb ,whether same shall be covered u/s 43B(h), other type buyer regd on say 15 th feb and goods bought on 20th feb , he got his registration cancelled on 15 th March ,whether o/s amt will be disallowed, since amt is not payable to MSME. ?? Please enlighten