An overview of 15 days / 45 days payment rule under section 43B(h)

Section 43B(h) addresses payments to Micro & Small Enterprises (MSEs) beyond the time limit specified in Section 15 of the MSMED Act, impacting deductions under the Income Tax Act. The new Section 43B(h) adds a layer of accountability for timely payments to MSMEs, impacting deductions and highlighting the importance of adherence to payment timelines

Let us have a short overview of the key issue:

Payment Timeframe: As per Section 15 of the MSMED Act, buyers must pay MSEs within 15 or 45 days, depending on the presence of a written agreement.

Interest Implications: Non-compliance triggers compound interest obligations at three times the RBI-notified Bank Rate.

Enterprise Classification: Micro, Small, and Medium Enterprises defined based on investment and turnover criteria.

Applicability: Effective from April 1, 2024, impacting payments made after April 1, 2023.

Impact on Taxable Income: Non-payment within the specified timeframe results in the outstanding amount being added back to the income. Deductions allowed only when the actual payment is made.

Practical Example:

If payment to an MSME is delayed but made before March 31, 2024, the deduction can be claimed for the previous year 2023-24, but compound interest obligations persist.

Normal question comes in mind , here is the answer for that.

– Applicability Date: Applicable from AY 2024-25 onwards for expenses incurred after April 1, 2023.

– Opening Balances: Not applicable to expenses incurred before April 1, 2023, which were already claimed.

– Interest under MSMED Act: Not allowable as an expenditure under Section 23 of the MSMED Act.

– Supplier Registration: Mandatory for applicability of Section 43B(h) on the buyer.

– Traders Inclusion: Not covered unless registered under MSMED Act.

– Probably new ITR forms will provide separate reporting for disallowance U/s 43B(h)