Amendment in section 43B of Income Tax Act 1961 – RELATED TO PAYMENT TO MICRO & SMALL ENTERPRISES
Applicable: Clause (h) of Section 43B is applicable from April 1, 2024. This amendment is made applicable from assessment year (AY) 2024-25, that is, Financial Year (FY) 2023-24.
In order to promote timely payments to Micro and Small Enterprises, the Finance Bill 2023 proposes to include payments made to micro and small enterprises within the ambit of Sec43B. A new clause (h) in Section 43B of the act provide that any sum payable by assesses to micro or small enterprise beyond the time limit specified in section 15 of MSMED Act 2007 shall be allowed only on actual payment basis.
Time Limit specified in section 15 of the MSMED Act 2007
Section 15 of the MSMED Act 2007 mandates payments to micro and small enterprise within the time as per the written agreement which cannot be more than 45 days. In case of no such written agreement the section mandates that the payment shall be made within the 15 days from the date of invoice.
•
Provided that in no case the period agreed upon between the supplier and buyer in writing shall exceed Forty-five days from the date of acceptance or deemed acceptance.
The amendment is applicable only to Micro and small enterprises having Valid MSME registration and possessing Udyam certificate.
Conclusion: Any payment outstanding to creditors (Micro or small) for time period greater than the prescribed time limits shall be added to the taxable income and will be allowed as deduction only in the year of payment. As per the proposed amendments buyer will be liable to pay interest to micro or small enterprise on amount outstanding for a period more than prescribed period at three times the bank rate i.e. 20.25% pa compounded annually with monthly rests
