GNIDA
AMENDMENT IN SECTION 43B OF INCOME TAX ACT, 1961: PAYMENT TO MSME VENDOR/ SERVICE PROVIDER/ MANUFACTURER
IMPORTANT AMENDMENT IN SECTION 43B (h) OF INCOME TAX ACT, 1961: PAYMENT TO MSME VENDOR/ SERVICE PROVIDER/ MANUFACTURER
The Government’s focus on enhancing liquidity for MSME entities has led to various amendments. The Finance Bill 2023 brought changes to Section 43B of the Income Tax Act, 1961, impacting MSME payments. Finance Bill, 2023 had made amendment to Section 43B of Income Tax Act, 1961 (‘the Act’) and had inserted subsection (h) to section 43B effective from Financial Year 2023-2024 (Assessment Year 2024-2025).
Accordingly, payments need to be done by assessee business to its suppliers who are registered with MSME as Micro or Small Enterprises within the time specified in Section 15 of the MSMED Act, 2006. Hence, in order to claim deduction under the Act, actual payments have to be done to Micro and small enterprises in cases where goods are purchased or services are availed from them failure to which may lead to disallowance of payment and addition to the total income. Introduction of this provision works quite threatening to assessee businesses who default in making payments to micro and small enterprises.
Main points are as under:-
1. The provision is applicable from FY 2023-24 i.e. AY 2024-25.
3. As per O.M. 5/2(2)/2021-E/P & G/Policy dated 02-07-2021, wholesale and retail traders are entitled for Udyam registration only for the benefit of Priority Sector Lending only. So, purchase from traders would be outside the purview of these amendments.
4. Enterprises who satisfy the below conditions can register themselves as micro or small enterprises.
|
Limits |
Micro |
Small |
|
Turnover |
<= 5 Crore |
<=50 Crore |
|
Investment in Plant & Machinery |
<= 1 Crore |
<= 10 Crore |
5. As per Section 15 of MSMED Act, 2006, the buyer will require to make payment;
a) In case of written agreement: within time limit as specified in the agreement but cannot exceed 45 days;
b) In case of no written agreement: within 15 days
The time limit of 15/45 days is to be considered from when?
As per Section 2 of MSMED Act, 2006, day of acceptance means:
(a) Where no objection raised in writing: the day of the actual delivery of goods or the rendering of services; or
(b) Where objection is raised in writing: In case any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
Consequence if the payment is not made within the said time limit?
If the payment has not been made within the said time limit, then deductions for such payments would not be allowed as deduction for the said financial year and added back in income tax return. The said deduction is allowed in the financial year in which the actual payment is made.
6. How will you identify if your vendor is registered MSME or Not?
You have to obtain Certificate from Vendors/ Service Provider/ Manufacturer who is registered.
if your vendor is not registered on MSME, take a declaration from them stating that he is not registered under MSME.
7. The above provisions are only applicable in cases where the assesse is claiming the deduction of expenditure i.e. revenue expenditure and therefore it is not applicable in case of expenses of Capital nature.
8. Is the deduction allowed if the payment is made before the due date of filing of return :- the proviso to Section 43B of the Act regarding payment of allowability of expenditure if paid before the due date of furnishing the return of Income shall not be applicable to this. Therefore, even though the payment is made before the due date of filing of return, the deduction is not allowed.
9. This amendment applies only to any expenditure incurred on or after 01/04/2023 and Invoice issued during the period on or after 01/04/2023.
Advice: - You have to make all payments with the compliances of Section 43 B (h) of Income Tax Act to avoid the dis allowances.
Leave A Comment