Section 43B MSME Payment Amendment and its implications
Relief to TDS Deductors wrt Inoperative PANs
April 24, 2024
The micro, small and medium enterprises (MSME) sector play a vital role in the economic growth of India. A recent amendment with respect to the Payment to Micro and Small Enterprises was introduced by adding clause (h) to Section 43B, which will be effective starting from April 1, 2024 i.e, from the Assessment Year 2024-2025. So, Let’s clarify the chatter surrounding the recent MSME amendment.
Q-1. What does Section 43B(h) says?
Ans – According to this clause, any amount owed by the taxpayer to a MICRO or SMALL enterprise, exceeding the time limit specified in Section 15 of the MSME Development Act, 2006, will be eligible for deduction in the fiscal year when the payment is made.
Q-2. To which types of MSME does this provision apply?
Ans – This provision is specifically applicable to MICRO or SMALL enterprises and does not extend to Medium enterprises.
| Classification | Micro | Small |
| Manufacturing Enterprises & Service Providers | Plant & Machinery up to Rs 1 crore and Annual Turnover up to Rs 5 crore | Plant & Machinery up to Rs 10 crore and Annual Turnover up to Rs 50 crore |
Q-3. Is this provision applicable to Medium Enterprises?
Ans – Medium Enterprises are those whose investment in Plant and Machinery are upto Rs 50 crore and Annual Turnover is up to Rs 250 crore. This Section 43B(h) does not apply to Medium enterprises i.e. No disallowance is applicable for non-payment within the specified time limit.
Q-4. What is the method to verify the Udyam Registration Number provided by the Supplier?
Ans – Through the MSME Portal, one can verify MSME registration and the type of enterprise (Micro / Small/ Medium) using the registration number provided by the supplier in the following: https://udyamregistration.gov.in/Udyam_Verify.aspx
Q-5. Apart from the disallowance, what were the consequences of delayed payments to MSME vendors which are still in existence?
Ans – The entity is liable to pay interest on delayed payment to MSME registered vendor. Rate of interest shall be three times of the bank rate notified by the Reserve Bank of India, compounded with monthly rest.
Q-6. Does this provision apply to Traders?
Ans – No, Sec 43B(h) does not apply to Traders. It is applicable to Manufacturing and Service providers only.
Q-7. What is the time limit specified in Micro, Small and Medium Enterprises Development Act 2006?
Ans – Section 15 of the Act mandates payments to micro and small enterprises within
- 45 days in case of an agreement and
- 15 days in case of no agreement.
Q-8. What should be considered if the payment terms, as per agreement exceeds 45 days (let’s say 60 days)
Ans – As per Sec 15, payment terms cannot exceed 45 days. So, even if the payment terms agreed upon are 60 days (i.e. exceeds 45 days), payment still has to be made within 45 days and calculations for deduction would be done accordingly.
Q-9. Are the payment terms mentioned in the invoice considered a written agreement?
Ans- The law doesn’t explain exactly what a “written agreement” is, but it does say that an agreement is when one person offers something and another person accepts it, and everyone involved agrees to it. So, even something like an invoice could count as a written agreement because it has all the important parts of an agreement in it.
Q-10. What would be the consequences if payment was not made within the time limit?
Ans – Failure to adhere to these timelines may result in the disallowance of purchases during income tax calculations. Therefore, Year of deduction will vary depending upon the due dates.
For further understanding, Let’s look at the example below:
Example – In which year deduction would be allowed if the Date of Purchase is 20th March 2024 and following are the additional information?
| Case | Credit period as per agreement | Credit Period to be considered (<45 days) | Due date as per agreement | Actual Date of Payment | Due Date to be considered | Year of Deduction |
| A | Within 10 days | Within 10 days | 30-03-2024 | 26-03-2024 | 30-03-2024 | 2023-24 |
| B | Within 10 days | Within 10 days | 30-03-2024 | 31-03-2024 | 30-03-2024 | 2023-24 |
| C | Within 10 days | Within 10 days | 30-03-2024 | 04-04-2024 | 30-03-2024 | 2024-25 |
| D | Within 20 days | Within 20 days | 09-04-2024 | 04-04-2024 | 09-04-2024 | 2023-24 |
| E | Within 20 days | Within 20 days | 09-04-2024 | 12-04-2024 | 09-04-2024 | 2024-25 |
| F | Within 60 days | Within 45 days | 19-05-2024 | 15-04-2024 | 04-05-2024 | 2023-24 |
| G | Within 60 days | Within 45 days | 19-05-2024 | 15-05-2024 | 04-05-2024 | 2024-25 |
Q-11. What would be the penal implications if deduction cannot be claimed in current year ?
Ans – The assessee will not receive deduction of the purchase/expense resulting in increased profits and consequently higher taxes. This increase in taxes will lead to an increase in advance tax and potentially incur interest charges on advance tax.
You can always visit our website www.akcoindia.com/blog for reading such important information. And if you feel you need any assistance then you may just mail us at contact@akcoindia.com.
You may find our other blogs below:
Who should file an Income Tax Return (ITR)?: Click here
Old Tax Regime vs New Tax Regime: Click here
Relief to TDS Deductors wrt Inoperative PANs: Click here
Source Info: https://msme.gov.in/
