Some FAQ related to Section 43B(h) of the Income Tax Act
In our earlier post we have discussed the newly introduced Section 43B(h) of the Income tax act which says that deduction shall be allowed only on payment basis in case of expense related to micro or small enterprise if the payment is not within due date as per MSMED Act, 2006.
To read full article CLICK HERE: No deduction of expenses under Income tax Act if payment is not made till 31st March: 43B amendment [MSME] – Taxontips
Few FAQ in relation to the transaction under section 43B(h) is as under:
1. To whom is this section applicable?
Ans. This section is applicable to all buyer who are buying goods from micro and small enterprise registered under MSMED Act, 2006. Only the assessee opting for section 44AD, 44ADA or 44AE are not required to apply this provision. It will not matter whether the buyer is company, firm, sole proprietor etc. or whether he is registered under MSMED Act or not, if he is purchasing goods from micro and small enterprise for business purpose Section 43B(h) will be applicable.
2. Is 43B(h) applicable when purchasing goods from trader registered under MSMED Act?
Ans. As per various FAQ of MSME and even the notification issued by RBI, it has been clarified that trader were included in MSMED Act, only to provide them the benefit of priority lending and no other benefits of MSMED Act is applicable on them and hence if you are buying from a trader registered under NIC 45, 46 and 47 of MSMED Act provision of Section 43B(h) is not applicable on same.
Check Q18 of the FAQ: https://samadhaan.msme.gov.in/MyMsme/MSEFC/FAQ.aspx#
3. Will provision of section 43B(h) be applicable on capital expenditure?
Ans. In our earlier post we had mentioned that it will be applicable on capital expenditure as well, however on re-reading of Section 43B it starts with “expense otherwise allowable” and capital expenditure is not otherwise allowable rather it is the depreciation which is allowable. Hence, in our humble opinion Section 43B should not be applicable on capital expenditure.
4. Will Section 43B(h) be applicable on opening balance on 01.04.2023?
Ans. The section was inserted by Finance Act, 2023 and hence this provision will not be applicable on any expense before FY 2023-24.
5. Whether deduction will be available if payment is made before filing of return of income?
Ans. Unlike other 43B provisions, clause (h) which discusses about payment to MSME no benefit has been provided for making payment till the due date of filing return of income. Hence, if payment is not made within the due date as per MSMED Act, 2006 then deduction shall be allowed in the year in which payment is made.
6. What is the due date of making payment as per MSMED Act, 2006?
Ans. If there is a written agreement between buyer and seller then the payment needs to be made as per terms mentioned in written agreement but it shall in no case exceed 45 days from the date of acceptance of goods or service. If there is no written agreement then payment needs to be made in 15 days from the date of acceptance of goods or service.
7. Will it be applicable if the supplier enterprise is not registered under MSMED Act, 2006?
Ans. In our humble opinion this provision is only applicable on enterprise registered under MSMED Act, 2006 hence, to check if your supplier is registered under MSMED Act or not ask for their MSMED/ Udyam certificate.
8. Is there any situation where the time limit of 45 days or 15 days could be extended?
Ans. If the buyer of goods or service within 15 days of receipt of goods or service raise written objection or defect in the goods or service provided the time limit of 45 days or 15 days shall be counted from the day when such defect is rectified.
If you have any further query or any solution for such MSME payment, please comment below.