Section 43B of Income Tax Act, 1961 provides that for the purpose of claiming deduction in the relevant previous year in which the expenditure is incurred, the below mentioned sums have to be paid by the assessee on or before the due date for furnishing the return of income under section 139(1) in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with such return.
(a) Any sum payable by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or
(b) Any sum payable by the assessee as an employer by way of contribution to any
provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or
(c) Bonus or Commission for services rendered payable to employees, or
(d) Any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, or
(da) Any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or
(e) Interest on any loan or advance from a scheduled bank or co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or
(f) Any sum paid by the assessee as an employer in lieu of earned leave of his employee,
or
(g) Any sum payable by the assessee to the Indian Railways for use of Railway assets or
Newly inserted clause by the Finance Act 2023, Applicable from F.Y. 2023-24
(h) 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.
Note- This clause applies only to micro and small enterprises, Medium enterprises are outside the ambit of this clause.
Before understanding the time specified in the MSMED Act, let’s understand the meaning of Micro and small enterprises-
Micro Enterprises-
Any Manufacturing enterprises and enterprises rendering Services which has – Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and
Annual Turnover ; not more than Rs. 5 crore.
Small Enterprises-
Investment in Plant and Machinery or Equipment: Not more than Rs.10 crore and
Annual Turnover ; not more than Rs. 50 crore
Time limit prescribed in the section 15 of MSMED Act.
Section 15 of MSMED Act, 2006 provides where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the date agreed upon between him-
If written agreement exists maximum period allowed is 45 days from the date of delivery of goods or services.
If no written agreement exist and no objection raise by the buyer than period would be 15 days from the date of delivery of goods or services.
Practical Example –
Case- 1 – When no written agreement exist and no objection received from buyer-
| S.No | Date of Order | Date of Supply | Credit period | Objection | Due date as per MSMED Act | Actual Payment Date | Deduction allowed in F.Y. |
| 1 | 01/03/2024 | 01/03/2024 | 0 | No | 15/03/2024 | 30/03/2024 | 2023-24 |
| 2 | 01/03/2024 | 01/03/2024 | 0 | No | 15/03/2024 | 02/04/2024 | 2024-25 |
| 3 | 01/03/2024 | 10/03/2024 | 0 | No | 25/03/2024 | 30/03/2024 | 2023-24 |
| 4 | 01/03/2024 | 10/03/2024 | 0 | No | 25/03/2024 | 02/04/2024 | 2024-25 |
Case-2 When written agreement exist and credit period is 60 days and no objection received from buyer.
| S.No | Date of Order | Date of Supply | Credit period | Objection | Due date as per MSMED Act | Actual Payment Date | Deduction allowed in F.Y. |
| 1 | 03-01-2024 | 03-02-2024 | 60 | No | 19-03-2024 | 30/03/2024 | 2023-24 |
| 2 | 03-01-2024 | 03-02-2024 | 60 | No | 19-03-2024 | 02/04/2024 | 2024-25 |
| 3 | 01-03-2024 | 10/03/2024 | 40 | No | 21/04/2024 | 21/04/2024 | 2023-24 |
In case of Sr No-1 & 2, credit period allowed is 60 days thus due date would be 04-04-2024, but as per Section 15 of MSMED, it shall not exceed 45 days.
Note-
- If objection is raised by the buyer, it shall be raised within 15 days from the date of delivery otherwise it shall be ignored while calculating the payment date as per MSMED Act, 2006.
- If objection is raised period shall be calculated from the date of resolving the objection.
- Objection shall be made in the writing.
- If Buyer defaults in making the payment- Disallowance provision attract pursuant to section 43B(h) of Income Tax Act, 1961.
Further section 16 of MSMED Act provides where the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on that amount at three times of the bank rate notified by the Reserve Bank. Interest shall be calculated from the date of appointed day.
Author Bio
There will be permanent disallowance in case of delay in payment. Read finance bill 2023 (iv) in the proviso, after the words “nothing contained in this section”, the brackets, words and letter “[except the provisions of clause (h)]” shall be inserted;