Introduction: Dive into the intricacies of Section 43B(h) under the Micro, Small and Medium Enterprises Development (MSMED) Act 2006. This section affects deductions for payments beyond specified time limits to Micro and Small Enterprises. Discover eligibility criteria, the responsibility of the supplier, and the importance of written agreements. Stay informed about the upcoming amendment effective from April 1, 2024, and its implications for payments to these enterprises.

1)

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. Section 43B(h)- Applicable in case of payment to MICRO & SMALL Enterprises only.
2) Only such micro and small enterprises which are registered under MSMED Act shall be considered for the purpose of applicability of section 43B(h). If supplier is not registered under MSMED Act 2006, then disallowance u/s 43B(h) cannot be invoked for dues outstanding to them. Payment to micro and small enterprises which are registered under MSMED Act are only covered u/s 43B(h).
3) Therefore, trader ,retailer, wholesaler, or person (Individual) is recognized under the MSMED as MICRO or SMALL ENTERPRISE by the authorities under the MSMED Act, the provision of section 43B(h) shall apply in their case. Applicable to all entities registered as MICRO and SMALL Enterprises under MSMED Act. One Should make the payment within time limit to avoid litigation.
4) As per section 2(e) of MSMED act, 2006 – “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951) or engaged in providing or rendering of any service or services. Hence, definition of enterprise does not include traders. Hence, section 43B(h) is not applicable for dues outstanding to traders. The Ministry of Micro, Small and Medium Enterprises vide Office Memorandum (OM) No. 5/2(2)/2021-E/P & G/Policy dated July 2, 2021 has allowed Udyam registration for retail and wholesale trade. However, benefits to Retail and Wholesale trade MSMEs are restricted to Priority Sector Lending only. Hence, other benefits available under MSMED act are not applicable to traders. Resultantly benefit of section 15 of MSMED act is not available to traders and hence 43B(h) cannot be made applicable to dues outstanding to traders. Assessee may take Contradictory View in support of his case during assessment.
5) It is the responsibility of the supplier to intimate its registration to the buyer. If in any case, the supplier has not in any manner intimated his MSME registration, then in absence of availability of information, no disallowance can be made under section 43B(h). However, To avoid litigation in future, even buyer must take written declaration duly signed/sealed from suppliers on his letterhead to support his argument.
6) 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. Time Limit for Payment to Micro & Small Enterprises –

a) 45 days from the day of acceptance or the day of deemed acceptance, if there is Written Agreement

b) 15 days from the day of acceptance or the day of deemed acceptance, if there is No Written Agreement.

7) MICRO ENTERPRISES – Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore Payments to MICRO – Section 43B(h) Applicable
SMALL ENTERPRISES – Investment in Plant and Machinery or Equipment:
Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore
Payments to SMALL – Section 43B(h) Applicable
MEDIUM ENTERPIRSES – Investment in Plant and Machinery or Equipment:
Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore
Payments to MEDIUM – Section 43B(h) Not Applicable
8) This amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years. Applicable for Financial Year 2023-24

Conclusion: Navigating the complexities of Section 43B(h) requires a thorough understanding of eligibility, time limits, and supplier responsibilities. This section, applicable to Micro and Small Enterprises, impacts deductions for overdue payments. Stay compliant and informed to avoid litigation, and anticipate the upcoming amendment effective from April 1, 2024, shaping assessments from the financial year 2023-24 onwards. This article serves as informational, not legal advice.

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Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice.

Author Bio

Qualification: CA in Practice
Company: S. L. AUTI & CO.
Location: MUMBAI, Maharashtra, India
Member Since: 22 Feb 2022 | Total Posts: 1

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