In the year 2023, a new rule called Section 43B(h) got added to the Income Tax Act. This rule says that if a big company owes money to a small or micro business for things they bought or services they got, and if they pay that money on time according to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, they can deduct that money from their taxes in the same year.
This new rule aims to solve a problem: sometimes, small businesses don’t get paid on time, which makes it hard for them to have enough money to keep running. This rule makes sure they get paid quicker. It starts working from April 1, 2024, and affects the tax year 2024–2025 and all the years after that.
Who Does This Rule Apply To?
This rule applies when a business buys things or gets services from a small or micro business that’s registered under the MSMED Act, 2006. The buyer doesn’t have to be registered under that act. This rule started working on April 1, 2024.
Example: Let’s say Mr. A (who isn’t registered under the MSMED Act) buys stuff from Mr. B (who is registered under the MSMED Act). Does Section 43B(h) apply? Yes, it does, because the seller is registered under the MSMED Act.
Does It Apply to Traders?
No, it doesn’t apply to traders. Traders are people who buy things and sell them again. This rule only applies to businesses that make things or provide services.
When Does It Start Working?
It starts working from April 1, 2024. This change affects the tax year starting from 2024-25 to the financial year ending in 2023-24.
Example: If Mr. A buys things from Mr. B on March 31, 2023, does Section 43B(h) apply? No, it doesn’t, because the purchase happened before March 31, 2023.
How Long Do Businesses Have to Pay?
Businesses have to pay small and micro businesses within 45 days, according to the MSMED Act, 2006. If there’s no written agreement, they have to pay within 15 days. If there is an agreement, they have to pay according to what’s written there, but it can’t be more than 45 days.
What Happens if They Don’t Pay on Time?
If a business doesn’t pay a small or micro business on time, they have to pay interest. The interest rate is three times the bank rate set by the Reserve Bank of India. They have to pay interest from the day they were supposed to pay.
What Are the Benefits of This Rule?
For Small Businesses:
1. They get paid on time, which helps them keep going.
2. They can negotiate better payment terms with bigger businesses.
3. They avoid disputes and legal problems because they get paid on time.
For Larger Businesses:
1. They can plan their taxes better.
2. They follow the law and have transparent financial practices.
3. They help build a strong ecosystem for small businesses.
In short, if invoices are paid between April 1, 2023, and February 15, 2024, before March 31, 2024, they can be deducted from taxes for the year 2023-2024. If they are paid within 45 days between February 16, 2024, and March 31, 2024, they can still be deducted from taxes for the year 2023-2024. If they’re paid late, they can only be deducted from taxes for the year they’re paid. For example, if invoices from March 2024 are paid in June 2024, they can only be deducted from taxes for the year 2024-25.
Author Bio
A Doctor maintained a private hospital tax audit itr filed every year purchases of hospital materials,hospital equipment and others from registered traders and others rs:50 lacs outstanding ledger balance as on dt:31-03-24.
Doubt:
1.15/45 days clause and sec 43 b(H) both provisions applicable for hospital
2.Sec 43 b(H) provision applicable for f.y 23-24 or 24-25
Applicability of 15/45 Days Clause and Section 43B(h):
The 15/45 days clause typically applies to transactions between a buyer and micro and small enterprises (MSEs) as per the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). This clause mandates that payments to MSEs should be made within 45 days from the ‘day of acceptance’ of goods or services, or as per the agreed terms, whichever is earlier.On the other hand, Section 43B(h) of the Income Tax Act pertains to the timely payment to MSEs. If payments to MSEs are not made within the specified timelines as per the MSMED Act, then tax deductions or allowances for those payments will only be allowed in the year in which they are actually paid.In the context of the private hospital, if it procures materials, equipment, or services from MSEs, both the 15/45 days clause and Section 43B(h) could be applicable. The hospital must ensure that payments to MSEs are made within the timelines prescribed by the MSMED Act to avoid adverse tax implications under Section 43B(h).
Applicability of Section 43B(h) for FY 23-24 or 24-25:
The applicability of Section 43B(h) for a specific financial year depends on when the payments to MSEs are actually made. If the outstanding ledger balance of Rs. 50 lakhs pertains to transactions from FY 23-24 and the payments to MSEs are not made within the prescribed timelines, then the provisions of Section 43B(h) would be applicable for FY 23-24.However, if any outstanding payments to MSEs are cleared in FY 24-25, then the tax implications under Section 43B(h) would be applicable for FY 24-25.It’s essential for the private hospital to ensure timely payments to MSEs to avoid any disallowances under Section 43B(h) and to maintain compliance with the provisions of the MSMED Act.