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Finance minister in the recent year has been putting red pill amendments in the budget without much announcement eg In previous year the amendment to section 38 of CGST act

Similar amendment was made Section 43B of the Income Tax Act, 1961, as it pertains to the deductions that are deemed to have been made in certain circumstances. The provisions of this section ensure that taxpayers do not claim deductions for amounts that are payable but have not been paid, and provide for a deemed deduction in certain cases.

An amendment made to Section 43B of the Income Tax Act, 1961, has amended that payments made to Micro, Small and Medium Enterprises (MSMEs) that are not made within the due date i.e 45 days, will not be eligible for a deduction.

Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 pertains to the Payment to Micro and Small Enterprises. According to this section, every buyer who buys any goods or receives any services from a micro or small enterprise, shall make payment to such enterprise for such goods or services within 45 days from the day of acceptance of such goods or services or the day of deemed acceptance.

This is now Boon to MSME but bane to all other Enterprises those that make purchases or obtain services from MSME Now must maintain strict timeline to make payments to MSME within 45 days of its acceptance and if paid after due date the deduction of such expense would be available after the payment is made in year payment is made.

Such harsh provision may be beneficial to MSME and would render getting payment on time but may add financial pressure to other MSME as well and add unnecessary compliance burden and tax burden to other enterprises as it would be difficult to maintain bill to bill payment entries and non-compliance would render adding back the amount in profit and gain in business and profession and pay tax on the same.

Indian markets were notorious in making payment on time and since enterprise were small and micro their voice was unheard by big enterprises and public undertaking this statutory protection will help and maintain cash flows. But we have to hope these points are not used as law for harassment by tax authority as it would be really difficult to explain that we have already complied with such provision.

Now Let’s hope this provision benefits MSME and relieve them of financial pressure.

Author Bio

I am Rajat Solanki and Currently Studying CA and I am working at MGIRT & Co. Bangalore View Full Profile

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June 2024