The introduction of Section 43B(h) under the Income Tax Act brings significant changes for Micro, Small, and Medium Enterprises (MSMEs). Effective from April 1, 2023, these new provisions aim to streamline the payment and deduction processes, ensuring timely payments to MSME suppliers. This FAQ article addresses common queries regarding the implications of this amendment, helping businesses navigate the new regulatory landscape in a hassle-free manner.
Section 43B(h) FAQ
Q. 1. When will the amendment u/s 43B(h) of the IT Act come into effect?
Ans. The amendment has taken effect from April 1st, 2023 and therefore it is applicable for financial year 2023-24 and onwards.
Q.2 What if the payment to an MSE Supplier is made after the due date specified under the MSMED Act 2006 but before the due date of furnishing the income tax return u/s 139(1) of the IT Act? Will it be allowable as a deduction in the tax return of FY 2023-24?
Ans. No, payment made after the due date specified under the MSMED Act will not be allowed as a deduction in the tax return of FY 2023-24 if not paid within the due dates specified in section 15 of the MSMED Act.
Q.3 What happens if there is no agreement between the buyer and seller?
Ans. In the absence of a written agreement, payment must be made within 15 days.
Q.4 What if interest is not paid within the specified time limit?
Ans. If payment is delayed, the taxpayer will be liable to pay compound interest to the supplier as per the RBI Bank Rate.
Q.5 Will there be any disallowance under section 43B(h) if the payment is made beyond the MSMED Act timeframe but within the same financial year?
Ans. No, there will not be any disallowance if the payment is made within the same financial year.
Q.6 Who can enjoy the benefits under the MSMED Act?
Ans. To avail benefits under the MSMED Act, the supplier must be registered under the Act as a micro or small enterprise.
Q.7 When does a taxpayer need to make a payment to an MSE Supplier after raising a dispute?
Ans. Payment needs to be made within 15 days from the date the dispute is resolved.
Q.8 What if a dispute is raised after the due date for payment?
Ans. If a dispute is raised after the due date, the amount may be disallowed under section 43B(h) if it remains outstanding.
Q.9 Do the provisions of section 43B(h) apply if the buyer is under presumptive taxation?
Ans. Payment to MSE Suppliers under presumptive taxation will not attract disallowance under section 43B(h).
Q.10 What if a buyer retains an amount with an MSE Supplier?
Ans. Retained amounts must be paid within the specified time limits under the MSMED Act.
Q.11 Is disallowance under section 43B(h) applicable on the total amount including GST?
Ans. Yes, the entire sum payable is subject to disallowance under section 43B(h).
Q.12 How are capital expenditures treated under section 43B(h)?
Ans. Capital expenditures not claimed for deduction are not subject to section 43B(h).
Q.13 What happens in case of delayed payments to suppliers?
Ans. Interest will be applicable as per the MSMED Act and disallowed while computing taxable income.
Q.14 Do traders registered under the MSMED Act fall under the provisions of section 43B(h)?
Ans. No, traders are not covered under the MSMED Act.
Q.15 Are opening balances of MSME registered entities covered under section 43B(h)?
Ans. No, opening balances are not covered during FY 2023-24.
Q.16 Is section 43B(h) only applicable to audited entities?
Ans. No, section 43B(h) is applicable to all entities.
In conclusion, businesses must understand the new provisions of Section 43B(h) to ensure timely payments to MSME suppliers and avoid disallowances. Compliance with these regulations will benefit both businesses and MSMEs, fostering better relationships and contributing to the growth of the sector in India. Let’s stay informed and compliant for a brighter future for all stakeholders.