Senior Advisor - Direct & International Tax
The Finance Act 2023 introduced a pivotal amendment to the Income Tax Act of 1961 by adding subsection (h) to Section 43B. This amendment, effective April 1, 2024, emphasizes timely payments to micro and small enterprises (MSMEs).
The section outlines specific criteria for allowable expenses and disallowances, impacting the taxable income computation of enterprises. As per the amendment,
To summarize, if any sum payable to micro & small enterprises (suppliers) is not paid within the time limit mentioned above, then expenses are not allowed as deductions while computing the taxable income of an enterprise. Those expenses will be allowed only after payment is made to the supplier.
Even though, the government has tried its best to clarify the provisions of these acts through a number of notifications and OMs, due to the involvement of multiple acts and types of business activities, there are a number of challenges in the practical implication of Section 43B(h), which can be described below. The government can provide clarification in respect of these issues and can help in smoothing the implication of the provision in § 43B(h).
In view of the discussion above, this amendment to Section 43B is a boom for the growth of micro and small enterprises. It will accelerate their performance due to timely payments to them and no default from the buyer side. On the other hand, it will lead to high tax consequences for the buyers if a delay happens in their actual payment. Hence, we have to ensure timely payments to the MSME’s.