Understanding Tax Deduction at Source (TDS)
Understanding Tax Deduction at Source (TDS) Tax Deduction at Source (TDS) is a mechanism where income tax is automatically deducted from payments made to a person during specified transactions. This…
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Impact of Section 43B(h) on Micro, Small, and Medium Enterprises (MSMEs)
Under the Finance Act of 2023, Section 43B(H) has been introduced by the Finance Ministry. This section mandates that payments for goods supplied by MSMEs must be made within 45 days.
Under the Finance Act of 2023, Section 43B(H) has been introduced by the Finance Ministry. This section mandates that payments for goods supplied by MSMEs must be made within 45 days. The inclusion aligns with the guidelines outlined in Section 15 of the MSMED Act, 2006, aiming to guarantee timely payments and safeguard MSMEs from potential disruptions in fund flow due to delays.
To bolster assistance for Micro, Small, and Medium Enterprises (MSMEs), notable modifications have been introduced through the recent amendment to Section 43B of the Income Tax Act.
Features of the Section 43B(h) Amendment
1. Amendment Overview
Clause (h) was incorporated into Section 43B by the Finance Act of 2023, following clause (g), with a specific emphasis on payments to Micro or Small Enterprises (MSEs).
2. Qualification Standards for MSEs
The criteria for categorizing MSEs depend on their investment in Plant and Machinery or Equipment, as well as their Annual Turnover thresholds. Micro enterprises have investment and turnover limits set at 1/5 crore, while small enterprises have limits of 10/50 crore, respectively.
3. Payment Schedules
The amendment enforces payment timelines for MSEs, aligning with the limits outlined in Section 15 of the MSME Act, 2006, i.e., 15/45 days. Deductions for payments exceeding these limits are permitted in the year of actual payment rather than the year they are due.
4. Applicability and Exclusions
Effective from the Assessment Year 2024-25, the amendment does not apply to outstanding amounts as of March 31, 2023. It exclusively pertains to Micro or Small Enterprises, excluding Medium Enterprises. The amendment is only relevant to payments for outstanding creditors as of March 31, 2024. It does not apply to assesses opting for presumptive taxation under sections 44AD/44ADA/44AE. The buyer is not obliged to be an MSME.
5. Tax Consequences
Non-compliance results in the amount being considered taxable income for the assessee, with deductions available in the year of payment.
6. Interest Liabilities
Delayed payments trigger compound interest obligations for the supplier, with rates tied to RBI-notified Bank Interest.
7. Supplier Obligations
Suppliers must inform buyers of their MSME registration to prevent disallowance under Section 43B(h).
8. Capital Expenditure
Exemption No disallowance under Section 43B(h) is applicable for outstanding dues related to capital expenditure.
9. Exclusion of Traders
Section 43B(h) does not extend to outstanding dues to traders, as per the MSMED Act’s enterprise definition.
10. Udyam Registration and Compliance
Enterprises with Udyam Registration must update their information on the portal to uphold their status.
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