Impact of Section 43B of Income Tax Act 1961
Sec 43B prescribes certain sums which are to be allowed as Deduction in computing Income referred in Sec 28 in the cases of actual payment of such sums only. Mere liability to pay such sums according to the method of accounting employed by him do not qualify for the deduction.
However, exception is given to those assessee who are following mercantile method of accounting and payment has been made within the due date of filing of return u/s 139(1). Thus, he can claim the sum as deduction in the year of an accrual.
Following New Clause “h” is proposed to be inserted in Sec 43B vide Union Budget 2023 and applicable from FY 2023-24.
“Any sum payable by the assessee to a Micro or Small Enterprise beyond the time limit specified in Section 15 of Micro, Small and Medium Enterprise Development act, 2006.
”Important Points to be considered: Medium Enterprises are not covered in this clause. Definition of Micro Enterprise Micro Enterprises are the enterprises having
1. Turnover = 5 Crores and
2. Investment in Plant and Machinery = 1 Crore. (Both the conditions have to be satisfied)
Definition of Small Enterprise Small Enterprises are the enterprises having
1. Turnover = 50 Crores and
2. Investment in Plant and Machinery = 10 Crore. (Both the conditions have to be satisfied)
Time Limit for the payment as per Sec 15 of MSMED act, 2006 Buyer shall make the payment for the supply of Goods or rendering of services within
1. the date agreed upon by him and supplier, in case of a written agreement However, in no case the period agreed upon between buyer and supplier shall exceed 45 days from the day of acceptance or deemed acceptance. (Or)
2. the appointed day, in absence of any agreement.
The appointed day means the day following immediately after the expiry of 15 days from the day of acceptance or deemed acceptance.
Day of Acceptance means
1. The day of actual delivery of Goods or rendering of services, (or)
2. If objection is raised regarding acceptance of goods or service by the buyer in writing within 15 days of delivery of goods or rendering of services, then the day on which such objection is resolved by the supplier.
Deemed acceptance means the day of actual delivery of Goods or rendering of services, where NO objection is raised by the buyer regarding the acceptance of Goods or Services within 15 days of delivery of goods or rendering of service.
Applicability of the proviso of making the payment within the due date of filing the return u/s 139(1) is also not applicable.
Therefore, if payment is made within the due date of filing return u/s 139(1) but beyond the due date mentioned in MSMED act, 2006, then deduction shall be available in the year of Payment and not in the year of Accrual.