Section 43B(h) Of Income Tax Act Vs. MSME

 

The Finance Act 2023 inserted Section 43B(h), which stipulates that any sum owed to Micro and Small enterprises for goods supplied or services given may be deducted in the same year if it is paid within the deadline stipulated by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. ((irrespective of the accounting method employed))

Time Limit
1) Business enterprises are required to pay MSMEs within 45 days, as per section 15 of the MSMED Act, 2006, depending on the presence of a written agreement.
2) In case there is no written agreement, payment should be made within 15 days.
3) In case there is a written agreement, payment shall be made as per the agreed-upon timeline, not exceeding 45 days.

MSME Turnover Limit
1) Micro Enterprises, means an entity having an investment in plant & machinery not exceeding 1 Crore and turnover not exceeding 5 Crores.
2) Small Enterprises, on the other hand, should invest in plant & machinery not exceeding 10 Crores and turnover not exceeding 50 Crores.

Applicability
1) This clause is applicable when an enterprise is buying goods or taking services from Micro and Small enterprise registered under the MSMED Act, 2006.
2) The registration of the buyer under the MSMED Act, 2006 is not mandatory.
3) It is applicable to Manufacturing and services Providers Only. Not applicable for dues outstanding to traders as per the MSMED Act’s definition of enterprise.
4) The assessment year 2024–2025 and any following years will be covered by this change, which will come into effect on April 1, 2024.

Penalties For Failure To Pay MSMEs
In the case of late payment to an MSME, interest is applicable.

1) Rate of interest: Compound interest at the 3 times the bank rate notified by the Reserve Bank of India (RBI).
2) Date from which interest is payable: The date as per the agreement or the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier (appointed day), as the case may be.
3) The deduction of this interest is not allowed as an expense, as per the Income-tax Act (ITA), 1961.