Understanding Section 43B(H) for Timely Payment to MSMEs: Key Insights for AY 2024-25

As we approach the financial year assessment for AY 2024-25, it's crucial to understand Section 43B(H) of the Income Tax Act, which impacts payments to Micro, Small, and Medium Enterprises (MSMEs). Here’s a breakdown to help you navigate this provision effectively:

1. Applicability:

A)?Recipient (Buyer)

????a)?If opted for Section 44AD and follows cash basis accounting, Section 43B(H) does not apply.

?????b) For regular taxpayers, Section 43B(H) is applicable.

B)?Supplier (Seller)

?????a) Registered under MSME Act: Section 43B(H) is applicable if the supplier is registered as a Micro or Small Enterprise. Check the MSME Certificate carefully.

?????b) Supplier is a trader (Check the MSME Certificate )then also Section 43B(H) does not apply.

?????c) Medium and Large Enterprises: Section 43B(H) does not apply.

2. MSME Categories and Limits:

????a)??Micro Enterprises: Turnover up to ?5 Crore and Investment in Plant & Machinery up to ?1 Crore.

?????b)?Small Enterprises: Turnover up to ?50 Crore and Investment up to ?10 Crore.

3. Payment Timeframes:

??????a) Agreement in Place: Payment should be made within 45 days from the invoice date or as per the agreed date, whichever is earlier.

????b)??No Agreement: Payments must be made within 15 days.

4. Consequences of Non-Compliance:

??????a) If payments to Micro and Small Enterprises are delayed beyond the specified timeframe, the amount becomes taxable income for the previous year. Deductions can be claimed in the year of payment.

??????b) Additionally, non-compliance can attract compound interest obligations at three times the RBI-notified Bank Interest rate.

5. Key Points to Note:

??????a) Provision: Applicable for AY 2024-25 (from April 1, 2023).

??????b) Opening Balances: Not applicable to opening balances as of 1/4/23

???? c)??Capital Assets: Does not apply to purchases of capital assets.

??????d) MSME Status: Verify the MSME registration status on the invoice date.

?6. Conclusion

?????a) If?Payment done on or before 31/3/20XX?then 43B(H) not applicable

?????b) We have to check the explained condition only on creditors outstanding as of year-end

How to Check MSME Registration Status: https://lnkd.in/gFMY8bRi

Ensuring compliance with Section 43B(H) will not only help in avoiding penalties but also strengthen your relationships with MSME suppliers.

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