Section 43B(h) is introduced by the Finance Act, 2023 and applicable from FY 2023-2024. The Government wants to ensure timely payments to Micro & Small Enterprises. As per MSMED Act, 2006, the definition of MSME enterprises is as under:
*Particulars* *Micro* *Small* *Medium*
Turnover <=5 crore <=50 crore <=250 crore
Investment in Plant & Machinery <=1 crore <=10 crore <=50 crore
As per MSMED Act, 2006, *the time limit for making payments* is as under:
(a) Where written agreement does not exist – within 15 days from the date of acceptance
(b) Where written agreement exist – Agreed date or within 45 days from the date of acceptance, whichever is earlier
Section 43B(h) says that if payment is not made to MSME enterprises within the specified time limit, then the expenses will not be allowed as deduction under Income Tax Act and shall be added back to the total income.
Thus, if the payment is made in subsequent year or payment is made before the due date of income tax return or filing of income tax return in the subsequent year, then the same shall not be allowed as expense in the previous financial year, however the same shall be allowed as expense in the financial year in which the payment has been made.
*Key points of Section 43B(h):*
(a) This Clause is not applicable to Medium category enterprises. It is applicable only on Micro and Small category enterprises.
(b) This Clause is not applicable on Capital expenditure (CAPEX) items, it is applicable on goods & services.
(c) This Clause is not applicable on Traders, it is applicable on manufacturing & services sector
(d) This Clause is not applicable on buyers who are filing their income tax return u/s 44AD/44ADA/44AE of the Income Tax Act;
(e) This Clause is not applicable on those vendors who are not registered under MSMED Act, 2006
(f) This Clause is not applicable on those payables for invoices dated on or before 31/03/2023
Pushkar Mer 