Payments only to Micro and Small units registered under MSME Act-- New Provisions under section 43B(h) of the Income Tax Act

 Introduction

The government introduced new regulations through the Finance Bill 2023 to bolster the recovery of accounts receivable in the MSME sector. These regulations significantly impact the deductibility of payments made only to Micro and Small Enterprises under the Income Tax Act.

Classification of MSMEs

Classification of Micro, Small, and Medium enterprises is based on a composite criteria of investment in plant and machinery or equipment and annual turnover as prescribed: 

Key Takeaways:

Ø  Timely payments are crucial: To claim the expense deduction, business assessees must pay MSMEs within the time limits specified in the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The payment thus must be made within 15 days from the acceptance of goods or services which may be extended to 45 days, if a mutual agreement exists.

Ø  Enterprise Size matters: The new rule only applies to micro and small enterprises, not medium enterprises engaged in manufacturing or rendering services.

Ø  Exclusion: Regardless of their registration under the MSME Development Act of 2006, Traders fall outside the definition of an enterprise. Therefore, they are not typically eligible for benefits related to delayed payment provisions outlined in the Act. This exclusion was clarified in an Office Memorandum (1/4(1)/2021-P&G/Policy) issued by the MSME Policy Division on September 1, 2021.

Ø  Consequences of delay: Ignoring these new regulations can be costly. Failing to pay on time will lead to:

 


 Practical Aspects:     

Ø  New provisions apply to expenses/ purchases/ services billed on or after 01.04.2023.

Ø  The deduction will be allowed only in the year of payment; payments made before the filing of the ITR are inconsequential.



Ø  If there is any dispute, the time period starts after the dispute is resolved.

Ø  Buyers opting for presumptive taxation are not covered.

Staying Compliant:

Ø  Review your payment terms: Review the terms of purchase agreements, ensure compliance with time limits specified in the MSMED Act.

Ø  Ask for Udyam Certificate: Send a letter to verify your suppliers’ MSME status’ by keeping record of their Udyam Certificate.

Ø  Separate Supplier Database: Maintain a separate MSE supplier database, tracking due dates and payments.

Ø  Track your payments: Monitor the payments due to MSMEs and prioritize settling these within the stipulated time.

Ø  Seek professional advice: Consult a tax advisor for complex business operations or uncertainties for personalized guidance.



Comments

Post a Comment

Popular posts from this blog

Key Income Tax Changes for Partnership Firms from April 1, 2025

Numerous changes are being introduced on the liabilities of Partnership Firms and LLPs that are to be effective from April 1, 2025 Starting April 1, 2025, partnership firms, including Limited Liability Partnerships (LLPs), will have to comply with two significant income tax changes brought in by the Finance (No. 2) Act, 2024. These amendments focus on increased limits for partner remuneration and the introduction of Section 194T, which mandates Tax Deducted at Source (TDS) on payments to partners. With the financial year 2024-25 coming to an end, it’s crucial for firms and their partners to understand these changes and ensure compliance. Here’s a detailed look at the two major tax reforms impacting partnership firms from the next financial year.   Increased Limits for Partner Remuneration Until FY 2024-25 (Assessment Year 2025-26), the maximum remuneration a working partner can receive is: On the first ₹3,00,000 of book profit (or in case of a loss): ₹1,50,000 or 90% of ...
Read more

New MSME classification criteria announced in Union Budget 2025-26

  Investment and Turnover limits for the classification of all MSMEs are to be enhanced to 2.5 and 2 times, respectively.   This will help MSMEs to achieve higher efficiencies of scale, technological upgradation, and better access to capital. Revision in classification criteria for MSMEs Types of Enterprises Changes in Turnover Limit Changes in Investment Limit       Micro Enterprises Rs 5 crore to Rs 10 crore Rs 1 crore to Rs 2.5 crore       Small Enterprises Rs 50 crore to Rs 100 crore Rs 10 crore to Rs 25 crore       Medium Enterprises Rs 250 crore to Rs 500 crore Rs 50 crore to Rs 125 crore       Other Initiatives announced in Budget fo...
Read more

Indian History

*माँ और बेटे के बीच बातचीत (हिंदी अनुवाद)* बेटा: मम्मी, ताजमहल बहुत सुंदर है। हमने ही बनाया है, है ना? 🙄 माँ: नहीं, प्रिय। इसे बनाने वाले बादशाह शाहजहाँ थे। वो मुस्लिम थे। 😥 बेटा: ओह। ठीक है। तो फिर हमने कुतुब मीनार बनाई होगी, है ना🙄 माँ: नहीं, वो भी एक मुस्लिम ने बनवाई थी। उसका नाम कुतुबुद्दीन ऐबक था। 😥 बेटा: तो फिर लाल किला तो हमने ही बनाया होगा? 🙄 माँ: नहीं, वो भी मुस्लिम शासकों ने बनवाया था। 🤧 बेटा: तो फिर पुराना किला? वो तो हमने ही बनवाया होगा, है ना? 🙄 माँ: नहीं बेटा, वो भी मुस्लिमों द्वारा बनवाया गया था। 😔 बेटा: ठीक है... लेकिन चारमीनार हमने जरूर बनाया होगा, है ना? 😕 माँ: नहीं। वो भी मुस्लिम शासकों द्वारा बनवाया गया था। 😟 बेटा: मम्मी, मैंने सुना है कि भारत ने अपनी पहली मिसाइल बनाई थी। वो तो हिंदू शासकों ने बनाई होगी, है ना? 😀 माँ: नहीं। भारत में पहली मिसाइल टीपू सुल्तान ने विकसित की थी। वो भी मुस्लिम थे। 😪 बेटा: मम्मी, मैंने सुना है कि ग्रांड ट्रंक रोड भारत के सबसे पुराने और लंबे रास्तों में से एक है, लगभग 3000 किलोमीटर लंबा। वो तो हमने बनाया होगा, है ना? 😌 माँ: नही...
Read more