Section 43B: MSME Payment Deductions and the Union Budget 2023

Introduction

Section 43B of the Income Tax Act is a pivotal provision governing the deduction of certain sums when computing income. It holds particular significance when it comes to payments made to Micro and Small Enterprises (MSMEs). We will discuss the amendment introduced in the Union Budget 2023 and explore the considerations surrounding payments to MSMEs.

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Section 43B

Section 43B prescribes specific sums that are allowable as deductions in the computation of income, provided they are actually paid. Mere liability to pay these sums, as per the accounting method employed, does not qualify for deductions.

In the Union Budget 2023, a new Clause "h" is added to Section 43B, effective from FY 2023-24. This clause pertains to "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 Enterprise Development Act, 2006."

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Key Considerations

There are several key points regarding Section 43B and the amendment:

1. Medium Enterprises Excluded: Notably, this clause does not cover Medium Enterprises.

2. Defining Micro and Small Enterprises:

?- Micro Enterprises must meet two criteria: Turnover less than or equal to 5 Crores and Investment in Plant and Machinery less than or equal to 1 Crore.

?- Small Enterprises must also satisfy two conditions: Turnover less than or equal to 50 Crores and Investment in Plant and Machinery less than or equal to 10 Crore.

3. Payment Time Limits According to the MSMED Act, 2006:

?- As per Section 15 of the MSMED Act, the buyer must make payments for the supply of goods or services within:

?- The date agreed upon in case of a written agreement, which must not exceed 45 days from acceptance.

?- The appointed day in the absence of an agreement, where the appointed day is the day following the expiry of 15 days from acceptance or deemed acceptance.

4. Date of Acceptance and Deemed Acceptance:

?- Date of Acceptance refers to the actual delivery of goods or services.

?- Deemed Acceptance occurs when no objections are raised within 15 days of delivery.

5. Proviso for Filing Return U/S 139(1) Not Applicable: The provision allowing deductions if payments are made within the due date for filing returns under Section 139(1) does not apply in this case.

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Conclusion

Understanding the nuances of Section 43B and its implications for MSME payments is essential for businesses to ensure compliance. The addition of Clause "h" in Section 43B, effective from FY 2023-24, underlines the significance of timely payments to Micro and Small Enterprises, which is an important consideration as the financial year end is approaching.

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