FAQs on Amendment of
Section 43B of the Income Tax Act, 1961
First up, how does Clause (h) affect Micro and
Small Enterprises under the MSMED Act, 2006? You’ll
find details on what happens if payments are late and which companies need to send in Form MSME
We’ll break down what deductions are allowed and
who can use Clause (h). It also covers how to handle opening balances. There’s information on TDS
deductions and what to know for audits and non-audits. Plus, we’ve got the exceptions for Section
44AD and 44ADA returns. This guide will help you understand what you need to do for compliance and
how it impacts your business.
FAQs on PAYMENTS TO MICRO
AND SMALL ENTERPRISES
Clause (h) in Section 43B was introduced by the Finance Act 2023, impacting income tax
deductions for certain payments or say, it specifically addresses the treatment of payments to
Micro and Small Enterprises under the MSMED Act.
The MSMED Act, in effect since 2006, mandates prompt payment for goods and services received by
micro, small, and medium enterprises, as per the agreement or within specified days.
If the payment is not made within 45 days, the buyer is required to make an interest payment,
calculated at three times the bank rate, compounded monthly. This provision, outlined in Section
16 of the MSMED Act, takes precedence over the income tax act.
Companies falling under the purview of the MSMED Act are required to file Form MSME 1
semiannually. This is a statutory compliance related to payments made to micro and small
enterprises.
Certain payments, including bonus, duties, taxes, and interest, are allowed for deduction if
made before the due date of filing the income tax return as per section 139(1).
Payments delayed but made as per section 15 of MSMED Act, are allowed for deduction in the same
financial year. However, payments outstanding after the due date i.e. date specified in section
15 of MSMED Act, are not eligible for deduction even if payment made before due date of filing
of Income Tax Return.
Yes, Clause (h) is applicable only to suppliers registered under Udham
Aadhar, excluding unregistered enterprises.
No, Traders registered under MSMED Act as specific benefits of priority sector lending are
not covered under Section 43B. Hence, provisions of 43B(h) are not applicable.
Opening balances, specifically deductions claimed in
earlier years, are not considered for disallowance under Section 43B(h).
In case where TDS is not deducted either on purchases or services / consultancy invoice,
only disallowance will be under section 43B(h) and non-deduction of TDS will be reported in
clause 26 of Form 3CD (if audit is applicable).
Where audit is not applicable, compliance to the
section will be made by adjusting computation of return. Tax provision needs to be made
accordingly.
No, section 43B(h) does not apply on Section 44AD and 44ADA Entities.
Note: Auditors must report appropriately for the non-provision of interest. It is essential
to carefully consider materiality and report accordingly, ensuring proper disallowance and
adjustment under Section 43B for accurate income tax provisions.