Understanding Section 43B(h) of the Income Tax Act.

Empowering Micro and Small Enterprises: Understanding Section 43B(h) of the Income Tax Act

The Income Tax Act of 1961, with the addition of clause (h) to Section 43B in the 2023 Finance Act, has taken a significant step towards supporting micro and small enterprises (MSMEs). This amendment aims to ensure timely payments to these crucial players in the economy, safeguarding their financial stability by addressing potential delays in customer payments.

Understanding Section 43B:

This section governs when specific deductions can be claimed based on the actual payment date rather than the accrual basis. In other words, certain expenses are only deductible in the year they are paid, not the year the liability arises. This applies to various expenses, including taxes, employee contributions, and interest payments.

Key Highlights of Section 43B(h):

• Delayed payments to MSMEs: This clause specifically targets payments made to MSMEs beyond the timeframe specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).
• Deduction based on actual payment: For such delayed payments, the deduction can only be claimed in the year the payment is actually made, regardless of the due date for filing income tax returns.
• Emphasis on timely payments: This provision incentivizes businesses to make timely payments to MSMEs, promoting their financial well-being and growth.

Defining "Enterprise" and "Micro/Small":

• Enterprise: As per the MSMED Act, an "enterprise" refers to an industrial undertaking, business concern, or establishment engaged in manufacturing, production of goods, or providing services. It's crucial to note that trading enterprises are not covered under this definition.
• Micro and Small Enterprises: The MSMED Act defines these categories based on their turnover and investment limits. Micro enterprises have a turnover limit of Rs. 5 crore and an investment limit of Rs. 1 crore, while small enterprises have a limit of Rs. 50 crore and Rs. 10 crore, respectively.

Conclusion:

Section 43B(h) plays a crucial role in promoting timely payments to MSMEs, contributing to their financial health and stability. By understanding the criteria and adhering to the regulations, businesses can ensure compliant financial practices and claim deductions accurately. The provided FAQs offer practical guidance for navigating real-world scenarios, empowering taxpayers to make informed decisions.

Advocate Anshul Mittal

9818214348

anshulmittalamm@gmail.com