Budget 2023 has introduced Section 43B(h) in the Income Tax Act to disallow payments to certain MSME suppliers if payment is not made within the due date. This provision carries significant implications for businesses, requiring careful attention to avoid adverse consequences. Here is some quick guide to help businesses to comply with this provisions;
Who needs to take care of this provision?
This provision applies to all entities engaged in business activities, be it Individuals, HUF, Companies, LLP or firms. Essentially, if you are conducting business, compliance with Section 43B(h) is required.
In case anyone is opting for presumptive taxation (Offering 6% or 8% of turnover as profit u/s 44AD for business or offering 50% of turnover as profit u/s 44ADA), this provision doesn’t applies. However, It is to be noted that only Individual and HUF is allowed to opt for presumptive taxation scheme.
Which payment is covered?
Payments to registered suppliers falling under the micro and small category and involved in manufacturing or service businesses are covered. It’s important to note that Payment to traders is not included in this provision.
Outstanding payments from the previous year, not settled in the current year, are exempt, but current year purchases must be considered.
Due dates for making these payments
Payments must be made within 15 days from the date of the invoice (45 days, if a written agreement is in place). Mere issuance of a cheque on 31st March to bring outstanding to zero is insufficient; actual credit to the supplier is recommended.
Agreements with suppliers specifying credit periods exceeding 45 days are not considered valid.
Consequences of non-payment
If payment is outstanding as on 31st March and this payment is not made within the above mentioned time, Entire expense will be disallowed and you need to pay tax on it. In case you are covered in audit, Audit report will contain para for this.
It is to be noted that, You can take deduction of this expense next year after making the payment.
What if there is any dispute with the supplier?
Dispute needs to be communicated in writing to the supplier within 15 days from invoice date. Time limit of 15/45 days for such case will start from the date on which dispute is resolved by supplier
Action Recommended to Business Persons
(1) Understand the provision of the law clearly.
(2) Take for declaration from your supplier (You may opt to obtain declaration from only those supplier whose payment will be outstanding as on 31st March, 2024 as per your judgement)
(3) Verify status of MSME registration from this link – https://udyamregistration.gov.in/udyam_verify.aspx
(4) If that MSME registered supplier is classified in micro or small category and that supplier is not a trader (This is to be be checked from above link and not to rely on information given by supplier) : Make payment to them within 15 days (45 days, if you have written agreement) from invoice date and don’t keep any outstanding as on 31st March which is paid beyond due date.
(5) Complete this exercise before 31st March.
Disclaimer
This blog is intended for informational purposes only and does not constitute professional advice. Readers are advised to consult with a qualified tax professional for personalized guidance based on their specific circumstances. The author and publisher disclaim any liability for any actions taken or not taken based on the information provided in this blog.