The enactment of Section 43B(h) of the Income Tax Act, 1961, has stirred considerable debate across the business community in India. With numerous protests and calls for its deferment or repeal, it’s clear that confusion and concern pervade among business owners and trade associations alike. This article aims to demystify Section 43B(h) through a comprehensive analysis of frequently asked questions (FAQs), providing clear insights and probable solutions to the most common queries raised by the business sector and the general public.

Section 43B(h) Compliance Essential FAQs

Understanding Section 43B(h): Section 43B(h) imposes conditions on businesses regarding the timeliness of payments to vendors, specifically those registered under the MSME Act. The provision’s aim is to ensure prompt payment to MSMEs, thereby improving their cash flow and reducing the financial strain. However, its perceived unfairness has led to widespread dissent, underlining the necessity for a thorough understanding.

FAQ ON SECTION 43B(h) of Income Tax Act, 1961

Questions Answers
1. How will the buyer know whether the supplier is registered under MSME Act or not? The buyer needs to obtain a written declaration from the supplier regarding their registration status under the MSME Act. Alternatively, the buyer can also get the MSME registration number from the supplier and check their status on https://udyamregistration.gov.in/udyam_verify.aspx

The buyer needs to confirm that he is registered as a “Manufacturer” only and not as “Trader” as the latter is not covered under it.

2. Are the balances which are outstanding as on 31.3.2023 are also covered and liable to be paid? No, only the balances which are outstanding as on 31.3.2024 and which are due for more than 45 days (in case of written agreement, otherwise 15 days) are covered.
3. During the Financial year, the buyer purchased the goods on 01.07.2024 and settled the MSME creditor on 31.3.2025, then will it be disallowed? No, only the sum payable is to be looked into. But the harsh provisions of MSME Act would apply and interest shall be payable on the outstanding balance by the buyer on delayed Payment (Principal amount) at a rate three times of the bank rate notified by RBI, compounded with monthly rest. The current bank rate is 5.15% so the thrice of it comes at 15.45%.
4. From what date the period of 15/45 days to be calculated from? The date of acceptance of such goods or services to be considered i.e. the date of delivery of the goods.

THE INVOICE DATE IS COMPLETELY IRRELEVANT here. So, if the goods remain with the transport for more than 45 days, then also this provision is not applicable, and be applicable only upon the receipt of such goods/ services.

5. Whether the interest is allowed as an expense and be debited to Profit and Loss Account? No, the interest is not allowed to be debited. Section 23 of MSME Act doesn’t allow the interest expense for the purposes of Income Tax Act, 1961.

 

6. Whether the provision of Section 43B(h) applies to purchase of capital goods from MSME Supplier? No, the expenses which are allowed in Profit and Loss Account can only be disallowed. The purchase of capital goods is not an expense, so there arises no question of its disallowance.
7. Whether the entire invoice amount is to be disallowed or only the purchases’ part? Only the purchase part is to be disallowed if the GST on it is shown as a liability otherwise the full amount.
8. I have paid the amount due as on 31.3.2024 on 10.04.2024, i.e. before the due date of filing the ITR, will it be allowed then? No, the proviso is very much clear and excludes clause (h) from its purview. Therefore, the amount would not be allowed and be disallowed also if its being paid before the due date.
9. If I am declaring income under section 44AD/ADA, then will the provision be applicable? No, the provisions of section 43B(h) will not be applicable to section 44AD/ADA since it starts with “Notwithstanding anything to the contrary contained in sections 28 to 43C” and section 43B(h) comes between it.
10. Do I need to pay every creditor within 15/45 days? No, only the suppliers who are registered as Micro or Small enterprises are covered.

Navigating Compliance: Adhering to Section 43B(h) requires businesses to adjust their payment processes and ensure they have the necessary documentation and systems in place to verify MSME registration status and track payment deadlines accurately. Awareness and understanding of these requirements are fundamental to navigating the compliance landscape effectively.

Conclusion: Section 43B(h) of the Income Tax Act, 1961, presents a significant compliance challenge for businesses. However, with a clear understanding of the provision and a proactive approach to managing vendor payments, businesses can navigate these requirements successfully. The provision, while contentious, underscores the importance of supporting the MSME sector, a critical component of the Indian economy. As further clarifications emerge from the government, businesses must stay informed and adaptable to remain compliant and foster positive vendor relationships.

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Location: Varanasi, Uttar Pradesh, India
Member Since: 14 May 2023 | Total Posts: 7
I am a CA Final student, having cleared the second group of CA Finals, with a keen interest in writing articles encompassing both direct and indirect taxation. My objective is to deliver clear and concise conceptual explanations through my articles. View Full Profile

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3 Comments

  1. ntlakhani says:

    If the supplier is registred in MSME on date of purchase and cancelled MSME registration say before 31/03/2024 whether the said sum is consideed as payable to MSME and liable for disallowance ???

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