Sec. 43B(h): A Guide for Businesses Dealing with MSMEs in FY 2023-24
Introduction:
With 2024 marking the inaugural year of applicability for Section 43B(h) of the Income Tax Act, businesses interacting with Micro, Small, and Medium Enterprises (MSMEs) must be aware of its implications. This section significantly impacts year-end finalization for the financial year 2023-24. To ensure a smooth process, here are 10 key considerations regarding Sec. 43B(h) payments to MSMEs:
Applicability:
- Sec. 43B(h) applies to businesses making payments to registered micro or small enterprises, as defined by the MSME Development Act, 2006.
- Payments to medium enterprises or traders are not subject to this section.
Supplier Verification:
- Verify your suppliers’ MSME registration status. You can request their MSME registration certificate or check their Udyam Registration details online.
Credit Period:
- Sec. 43B(h) emphasizes timely payments based on agreed credit terms.
- Written Agreements: If a written agreement exists, the payment deadline is the agreed date, but no later than 45 days from the invoice date. Purchase orders or invoices with specified credit terms may also be accepted.
- No Agreement: In the absence of a formal agreement, the payment deadline is 15 days from the invoice date.
Dispute Resolution:
- A genuine dispute regarding the quality of goods or services delivered will not disallow the deduction, provided proper documentation exists. Notify the supplier of the dispute within 15 days of receiving the goods/services.
Interest on Delayed Payments:
- While Sec. 43B(h) doesn’t mandate interest on delayed payments, offering it can foster positive relationships with MSME suppliers.
Presumptive Taxation:
- This section does not apply to businesses declaring income under presumptive taxation sections like 44AD, 44ADA, and 44AE.
Capital Expenditure:
- Sec. 43B(h) does not apply to capital expenditures. This section addresses the disallowance of expenditure, and capital expenditure is not treated as a regular business expense.
Pre-April 1, 2023 Transactions:
- Payments due before April 1, 2023 (the applicability date) are not subject to Sec. 43B(h) provisions.
Recordkeeping:
- Maintain clear and accurate records of MSME transactions, including invoices, agreements, and payment proofs. These records should explicitly identify the supplier as a micro or small enterprise. If a supplier is not registered, obtain a declaration from them.
Documentation:
- Secure copies of MSME registration certificates, written agreements (if any), and payment records for smooth tax filing.
Conclusion:
Understanding Sec. 43B(h) empowers businesses to ensure timely payments to MSMEs, cultivate strong business relationships, and optimize tax deductions for the financial year 2023-24.
Disclaimer:
This information is for general informational purposes only and does not constitute tax or legal advice. Please consult with a qualified tax professional for guidance on your specific situation.
By incorporating a more formal tone, removing unnecessary conversational elements, and clarifying some points, this revision enhances the post’s professionalism
