Payments to SME for compliance u/s 43B(h) of Income Tax Act

Payments to SME for compliance u/s 43B(h) of Income Tax Act

Section 43B[(h): any sum payable by the assessee to a micro or small enterprise beyond the time-limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006.),] shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.

After plain reading of this section it is clear that this sections become applicable if there is a payment beyond the time specified in section 15 of MSME act.

Liability of buyer to make payment as per MSME Act

Section 15:

Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day :

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

“appointed day” means 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.

(b)

Explanation.—For the purposes of this clause,—   (i) “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 fifteen 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;   (ii) “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;

 

“supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,—

 

(i)		the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii)		the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956);
(iii)		any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;

 

Memorandum of micro, small and medium enterprises.

8. (1) Any person who intends to establish,—

(a)		a micro or small enterprise, may, at his discretion, or
(b)		a medium enterprise engaged in providing or rendering of services may, at his discretion; or
(c)		a medium enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951),

shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3)( i.e at Udyam portal)

as per the provisions outlined in the OM dated 01.09.2021, a supplier classified as a micro or small enterprise, engaged solely in trading activities as indicated by their Udyam Certificate, would not be considered a “Supplier” for the purposes of section 15 and section 43B(h). The distinction is notable as it affects the applicability of certain provisions within the MSMED Act.

Date from which and rate at which interest is payable [Section 16]

16. Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly reststo the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Section 23 of the MSMED Act read with Section 37(1) of the IT Act provides that such interest on delayed payment will not be allowable as a deduction in the computation of income of a buyer.

• Obtain the MSME Certificates From All the Creditors: To all the creditors send an email and obtain their MSME certificates if any and update these data in your records.

This amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years.

S. No.	Day of acceptance of goods or services	Due date of payment as per agreement	Specified time as per Section 15 of MSMED Act	Date of actual payment	Tax implication under Section 43B(h)
1	Nov 01, 2023	Nov 30, 2023	No 30, 2023	March 31, 2024	FY 2023-24: No disallowance, as payment made within the FY
2	Nov 01, 2023	No agreement	Nov 16, 2023	March 31, 2024	FY 2023-24: No disallowance, as payment made within the FY.
3	March 15, 2024	April 20, 2024	April 20, 2024	April 10, 2024	FY 2023-24: No disallowance, as payment made within the specified time.