MSMEs -Amendment in Section 43B

The Union Budget 2023 have proposed to insert a new clause (h) in Section 43 of the Income Tax Act, 1961

Section 43B contains sums which are to be allowed as deduction only on actual payment made of such sums. Meraly booking as liabilities to pay in financials will not be sufficient to claim such sums as deduction under income tax.

However, if the assessee make such payment on or before the due date of return U/s 139(1) then the sums can be claimed as deduction.

Following new clause “h” is inserted in Section 43 vide Union Budget 2023 and applicable from FY 2023-2024.

“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 Enterprises Development Act, 2006 (27 of 2006)”

• Who are covered

* Both conditions have to be satisfied

** Medium Enterprises not covered under clause “h”

• Time Limit for payment as per Section 15 of MSMED Act, 2006

“Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.”

            i.e.       – in case of written agreement – date agreed upon

– in absence of any agreement – appointment date

i.e. the day following immediately after the 15 days

from expiry of acceptance or deemed acceptance.

• Applicability of the proviso of making the payment within due date of filing the return U/s 139(1) will not applicable to clause (h) for outstanding MSMEs Payment. Although you can claim the same sums in the year of payment.

i.e. if the payment is made to MSMEs within the due date of filing return U/s 139(1) but beyond the due date mentioned in section 15 of MSMED Act, 2026 then deduction shall be available in the year of payment and not in the year of accrual.  

Examples

M/s ABC (Supplier) deliver the goods of Rs 100000 to M/s XYZ (Buyer) on 18/03/2024 and M/s XYZ made the payment to M/s ABC with written agreement.

* As payments are made after due date in few type, where disallowed were attracted, the said expenses will be allowed in next year, i.e. year of payment.