Introduction: Article provides an insightful overview of Section 43B(h) of the Income Tax Act, 1961, focusing on its implications for Micro and Small Enterprises (MSEs). The article delves into key amendments, timelines, and considerations for businesses dealing with MSMEs.
Below is the crucial point of concerned amendment for your reference as per my understanding:
– If sum payable to MSEs remains outstanding at end of F.Y. & paid in next F.Y. after due date as per sec. 15 of MSMED Act, it will be allowed as deduction in year of actual payment only & not in the year in which liability incurred.
– 43 of the Income Tax Act is applicable only to Micro and Small Enterprise (MSEs); not applicable to Medium Enterprise {[Invt. in Plant & Mach – more than Rs. 10 Cr to Rs. 50 Cr] / [turnover – more than Rs. 50 Cr to Rs. 250 Cr]}
– To avail benefits of MSMED Act, concerned supplier / vendor must be registered with concerned authority under MSMED Act.
– 43B(h) of Income Tax Act permit deduction when amount is outstanding at end of year (F.Y.) AND is paid within time specified under Sec. 15 of MSMED Act.
Timeline u/s 15 of MSMED Act:
1. Total time cannot exceed 45 days if there’s an agreement between parties.
2. If no agreement, then payment should be made within 15 days.
– 43B(h) of Income Tax Act – Applicable w.e.f. F.Y. 2023-24 & onwards
– 43B(h) of Income Tax Act will applies to those amounts which remains outstanding at end of F.Y.
Only those expenditures which are claimed as deduction to compute the income of taxpayer should be subject to Sec. 43B(h) of IT Act
– If buyer is opting for presumptive taxation u/s 44AD / ADA of IT Act, then disallowance u/s Sec. 43B(h) will not attract.
– Disallowance amount will include tax portion also [e.g. goods / service value Rs.100 + Rs.10 as tax]
– If buyer has issued cheque to supplier and it gets rejected after specified time u/s 15 of MSMED Act, then disallowance u/s 43B(h) will be there.
– The buyer must insist the MSE supplier to raise the invoice only on the date of completion of service to avoid any ambiguity w.r.t. interpretation of term ‘rendering of service’
– In case of debtor & creditor relationship between both buyer and MSME supplier & periodic settlement of account takes place (i.e., cross business) – FIFO basis to be used and net liability should be paid by debtor as per Sec. 15 of MSMED Act
– Treatment of interest paid in case of delayed payment to supplier – disallowed to buyer while computing his income chargeable to tax.
– Caution to be taken by the Corporate: disallowance u/s 43B(h) will attract only if payment to the MSEs is not made during the F.Y., therefore, taxpayer should check status of all MSME enterprises as on date without considering the status mentioned in the MSME certificate. This exercise should be done in the February month only to apprise the actual status of the enterprise which can be checked at Udyog Aadhaar(Official Website for MSME Registration, Ministry of Micro, Small and Medium Enterprises) (udyamregistration.gov.in)
Conclusion: This comprehensive analysis sheds light on the intricacies of Section 43B(h) of the Income Tax Act concerning MSMEs. Understanding compliance requirements, timelines, and special considerations is crucial for businesses to navigate the evolving tax landscape. This article serves as a valuable resource for businesses aiming to ensure compliance and make informed financial decisions in their dealings with MSMEs.
Disclaimer: The entire content of this write up is author’s own understanding and personal view.
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