No Relaxation or Extension of Rule providing for Timely Payments to MSME within 15 / 45 days




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No Relaxation or Extension of Rule providing for Timely Payments to MSME within 15 / 45 days

 

Query 1]

In the earlier issue of The Tax Talk, you have covered the new rule which provides for payment to MSME within a period of 45 days? Whether this rule has been postponed now? Whether it will be applicable to the person doing trading business? What if the payment is not done due to disputes between the parties? If the suppliers give a consent letter for making payment say after 4 months, whether deduction can be denied in such a case also? If the person is not receiving payment from its buyers, whether the payment to the suppliers can be deferred in such cases or can be net off? It has been said that if the payment is done before filing income tax return, the amount will not be disallowed. Is this correct?

Opinion:

  1. Finance Act – 2023 has added a new clause (h) to section 43B so as to ensure that the payments to micro and small enterprises is done in accordance with the provisions of MSMED Act.
  2. Section 43B(h) provides that the deduction towards expenses shall be available under the income tax law only if the payment to Micro/Small is actually made within the period agreed in writing between the buyer & seller. If there is no agreement in writing then the payment has to be done before the appointed date (i.e., 15 days). If the period agreed in writing is more than 45 days then the payment has to be done within 45 days only.
  3. It is applicable to all the categories of businesses. Even if the person who is engaged in the trading business and has purchased the goods from MSME, the new rule requiring payment within the prescribed time frame will be applicable. However, any person purchasing the goods from a trader will not be hit by section 43B(h). In short, every buyer will be required to make the payment U/s 43B(h) within the prescribed time frame if the purchase is done from medium or small enterprises and not if the purchase is done from traders or large enterprises.
  4. The disallowance U/s 43B(h) is going to be there if the payment is not done within agreed period or 15 days / 45 days period & the amount is outstanding as on 31stMarch. It will remain so even if the seller gives the mutual consent or expresses the willingness to make payment after 45 days.
  5. Deduction is admissible only if the payment is either done in the same financial year or within a period of 15 days or 45 days if the same falls after 31stMarch. Deduction shall not be admissible if the same is paid after the end of the financial year and the period of 15 days or 45 days has expired. Even if such payment is done before filing the ITR, the disallowance would still be there & deduction shall be admissible in the next year when the payment is done.
  6. Disputes regarding Goods:
    The period of 15 days or 45 days is applicable from the date of acceptance or deemed acceptance.
    Here, “The day of acceptance” means
    (a) the day of the actual delivery of goods or the rendering of services; or
    (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within 15 days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
    and “The day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
    In short, if the objection is raised in writing within a period of 15 days then the period would be reckoned from the date of removal of such objection.

Query 2]

I have earned Long Term Capital Gain (LTCG) of Rs. 7 Lakh from share till 10.03.2024.The share market is in the correction mode now & I may have Short Term Capital Loss (STCL) if I sell a few shares now. I want to know whether STCL can be adjusted against my LTCG? If not,
a) Whether it can be set off against my salary income or interest income?

  1. b) Whether STCL can be carried forward for next year and will be allowed to be set off only against LTCG?

Opinion:

  1. STCG is allowed to be set off against any LTCG income.
  2. Any STCL is not allowed to be set off against salary income or interest income or any income from other sources.
  3. Any STCL which cannot be set off against any other capital gain income in the same year is allowed to be carried forward for next 8 years. In subsequent years also, it can be set off only against LTCG or STCG income.

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com.  Other articles & response to queries are available at www.theTAXtalk.com]

 




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