Tag: finance

Introduction of Section 43B(h) in the Income Tax Act.

by Pushkar Mer

As per the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,the buyer is required to make payment within 45 days of the acceptance of goods or services rendered. If payment not made within 45 days, interest liability arises.

To support MSMEs government seems to be very serious.

The MSME Return form was introduced by the Ministry of Corporate Affairs (MCA) on 22 January 2019 to strengthen the provisions of the MSME Development Act, 2006 (MSMED). In half yearly MEME Return, every company is required to file outstanding details of MSMEs.

Now government has decided to disallow such expenses in case of violation of payment condition as per MSMED Act (means payment must have to be released to MSMEs within 45 days.

The Finance Act, 2023, introduced Section 43B(h) in the Income Tax Act to ensure timely payments are made to MSMEs and to maintain uninterrupted cash flow. This rule will be applicable w.e.f. 1st April, 2024. However, industries is requesting government to postpone this rule for 1 year.

Unlike Section 37(1), the deductibility under Section 43B is not linked to the distinction between capital expenditure and revenue expenditure. Section 43B applies to sums payable in respect of which a deduction is otherwise allowable under this Act.

Therefore, Section 43B(h) would apply to amounts payable to micro or small enterprises with respect to the purchase of capital goods for which a 100% deduction is admissible under Sections 30 to 36. For example, the deduction of 100% of capital expenditure under Section 35AD and the deduction of 100% of capital expenditure on scientific research under Section.

If a 100% deduction of capital expenditure is not allowable, there would be no disallowance with respect to depreciation on capital goods purchased if the MSE supplier of capital goods is not paid in time. This is because depreciation is not a “sum payable in respect of which deduction is otherwise allowable”. What can be disallowed under Section 43B(h) must have the character of a sum payable in respect of which deduction is otherwise allowable.

The Courts had taken the view that depreciation cannot be disallowed on the cost of the asset which was capitalized in books of account, but tax thereon was not deducted under Section 40(a)(i)/(ia) of the Act.

Storage of Payment System Data

by Pushkar Mer

The entire payment data shall be stored in systems located only in India, except in cases clarified herein.

The data should include end-to-end transaction details and information pertaining to payment or settlement transaction that is gathered / transmitted / processed as part of a payment message / instruction. This may, interalia, include – Customer data (Name, Mobile Number, email, Aadhaar Number, PAN number, etc. as applicable); Payment sensitive data (customer and beneficiary account details); Payment Credentials (OTP, PIN, Passwords, etc.); and, Transaction data (originating & destination system information, transaction reference, timestamp, amount, etc.).

  • There is no bar on processing of payment transactions outside India if so desired by the PSOs. However, the data shall be stored only in India after the processing. The complete end-to-end transaction details should be part of the data.
  • In case the processing is done abroad, the data should be deleted from the systems abroad and brought back to India not later than the one business day or 24 hours from payment processing, whichever is earlier. The same should be stored only in India.
  • However, any subsequent activity such as settlement processing after payment processing, if done outside India, shall also be undertaken / performed on a near real time basis. The data should be stored only in India.
  • In case of any other related processing activity, such as chargeback, etc., the data can be accessed, at any time, from India where it is stored.

Banks having server outside India have been strictly directed by RBI for not sharing customer account sensitive data in bank statement

In order to be in adherence to the Reserve Bank of India (RBI) Directive, the below listed information will not be available in the periodic banks statement/s for RTGS and NEFT transactions undertaken at your end (in cases if banks are storing data outside India):-

  • Serial Number of the Transaction
  • Message to Beneficiary
  • Beneficiary IFSC Number
  • Remitting IFSC Number
  • Address of the Remitter
  • Remarks
  • Debit Account Number
  • Beneficiary Account Number
  • Remitter Account Number
  • Reject Reason Description
  • Sender to Receiver Information

Mercedes-Benz get stay order against demand for GST on Expat Salary

by Pushkar Mer

In a relief for the auto major Mercedes-Benz, Bombay High court has granted an interim-stay of order demanding GST dues on expat-salary payment by the company. Last year, honorable Supreme Court has held that the salary of overseas employees (deputed to Indian company) that is reimbursement to the overseas entities will be subject to service tax. This decision shakes companies. Based on this decision GST department aggressively started issuing notices to companies demanding GST on reimbursement of expat salary. Directorate General of GST Intelligence (DGGI) recovers INR 2,500 Crores GST dues not paid on expat salaries. Many companies deposited GST on reimbursement of expat salaries. Some companies decided to challenge GST notices. However, rules are not yet clarified and companies are advices to analyze Supreme Court (SC) decision made in case of Northern operating Systems Pvt Ltd and check facts. If facts are matching with NOS arrangements, then GST need to be deposited, if company can differentiate facts, it can decide to challenge GST demand notice in court. This decision will be huge impact on company’s cash flow because GST demand will be calculated w.e.f. 01.07.2027 and interest and penalty will also be required to be deposited under section 73/74 of CGST Act.