Tag: tax

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.

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.