Section 43B(h): Disallowance on non-payment/delay in payment to MSME Creditors
INTRODUCTION OF SECTION 43B
Finance Act 2023, introduced a major amendment in Section 43B of the Income Tax Act, 1961 by adding sub-clause (H) to it. Section 43B deals with allowabilty of certain deductions on actual payment basis. As per Section 43B exepnses are allowed to deducted from Income from Business and Profession based on the previous year in which such sum is actually paid by the assessee. However if Expenses are paid on or before due date for furnishing the return of Income for FY in which liability to pay expenses reffered above arised under section 139(1) then such expenses are allowed to be deducted while calculating Income from Business and Profession.
WHAT IS NEW CLAUSE (H) OF SECTION 43B?
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 shall be allowed as deduction while calculating the Income from business or profession based on the previous year in which such sum is actually paid by the assessee.
MEANING OF MICRO OR SMALL ENTERPRISE
MICRO ENTERPRISE:
Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and
Annual Turnover ; not more than Rs. 5 crore
SMALL ENTERPRISE:
Investment in Plant and Machinery or Equipment: Exceeds Rs. 1 Cr. but not more than Rs.10 crore and
Annual Turnover ; Exceeds Rs. 5 Crore but not more than Rs. 50 crore
TIME LIMIT U/S 15 OF MSME ACT
Section 15 of the Micro, Small and Medium Enterprises Development Act 2006 mandates payments to micro and small enterprises within 45 days in case of written agreement and 15 days in case of no-written agreements
IMPORTANT POINTS TO BE NOTED:
- Provision of clause (H) of Section 43B are not Applicable to persons who are not registered in UDYAM portal.
- This provision not applicable for wholesaler or Traders.
- Apllicable only for Micro & Small Enterpises and not for Medium Enterprises
- Applicable only for Manufaturers and Service Providers
- If invoice between 01-Apr-2023 to 15-Feb-2024 were paid before 31-Mar-2024. Then expenses allowed in F.Y-2023-24
- If invoice between 16-Feb-2024 to 31-Mar-2024 were paid within 45 days then expenses allowed in F.Y-2023-24 (Assuming that there is a written agreement of 45 Days between buyer and supplier and if a written agreement does not exists then payment needs to be made within 15 days)
- If Expenses amount not paid within due date, then that amount shall be included in the income from Business and Profession.
