Pay MSME within 45 days

In order to promote timely payments to micro and small enterprises, the Finance Bill, 2023 proposes to include payments made to such enterprises within the ambit of section 43B of the Act.

Accordingly, it is proposed to insert a new clause (h) in section 43B of the Act to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the MSMED Act shall be allowed as deduction only on actual payment.

IMPACT OF THE PROPOSED AMENDMENT

Section 43B of the Act provides that deduction for certain sums specified in its clauses (a) to (g) is allowable only on actual payment. However, the Proviso to this section allows deduction on accrual basis if the specified sum is paid by due date of furnishing of the return of income.

The sums covered by clauses (a) to (g) may have fallen due for payment before the close the financial year and remain unpaid at the end of the year.

In respect of these sums, section 43B is not concerned whether the payments had fallen due or not before the end of the financial year. The Section and the proviso thereto read together provide that deduction is allowable if the actual payment is made by the due date of furnishing the return of income.

But so far as the sum covered by the proposed clause (h) is concerned, the payment of the principal sum due to a Micro and Small Enterprise must be made within the time limit specified in section 15 of the MSME Act so as to qualify for deduction.

Section 15 of the MSMED Act provides that in no case the period agreed upon between the supplier and the buyer for payment of invoice in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

It will not be out of context to mention that The Companies Act, 2013 provides that a Company must file e-form MSME-1 every half year with Registrar of Companies mentioning all the transaction, wherever payment made after 45 days in its financial statements.

APPLICABILITY

The Bill provides that this amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years. It means the proposed amendment will apply to payments falling due on or after 1st April, 2024 and not to the unpaid amounts brought forward from past years on 1st April, 2024.