Income Tax Act, 1961
Sec 43 Certain deductions to be only on actual payment –shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him
(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 (27 of 2006)
Micro, Small And Medium Enterprises Development Act, 2006
An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely: —
(i) a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
(ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and
(iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES
Liability of buyer to make payment
Sec 15. Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
Date from which and rate at which interest is payable.
Sec 16. Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
Definitions
(b) “appointed day” means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation.—For the purposes of this clause,—
(i) “the day of acceptance” means,—
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where 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;
(ii) “the day of deemed acceptance” means, where no 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 of the actual delivery of goods or the rendering of services;
MSME PORTAL UPDATE: New functionality to “Verify Udyam Registration Number” now made operational.
Now you can verify MSME number of your suppliers to check Section 43B(h) applicability.
The link to access is:
FAQs on Ensuring Timely Payments to MSME Creditors
In today’s business environment, MSMEs are pivotal for economic growth.
Here’s a breakdown of the recent amendment to Section 43B(h) and its implications:
➡️ What Constitutes MSMEs?
– Micro Enterprises: Investment up to ₹1 crore in Plant & Machinery or Equipment, with a turnover below ₹5 crore.
– Small Enterprises: Investment up to ₹10 crore in Plant & Machinery or Equipment, with a turnover below ₹50 crore.
– Medium Enterprises: Investment up to ₹50 crore in Plant & Machinery or Equipment, with a turnover below ₹250 crore.
➡️ What’s the Amendment Regarding Payment to Creditors?
– Effective from AY 2024-25, deductions for overdue payments to Micro or Small Enterprises beyond specified limits (15/45 days) won’t be allowed in the previous year. Deductions will be allowed in the year of payment.
➡️ Who Needs to Comply with Section 43B(h)?
– All taxpayers from FY 23-24 onwards.
– Applicable to expenses with payments not made within specified periods to vendors registered on the UDYAM portal.
➡️ Exceptions to the Clause:
– If payment is made within specified periods or vendor is not registered on UDYAM.
– If the vendor is a Medium Enterprise or a trader (retailer/wholesaler).
➡️ Compliance Measures:
– Obtain written declarations from vendors regarding UDYAM registration.
– Keep a copy of the MSME certificate in records.
– Verify MSME registration through the MSME Portal.
➡️ Applicability to Expenditures:
– Section 43B applies to revenue expenditure only.
– No disallowance under 43B(h) for outstanding payments related to capital expenditure.