SECTION 43B AMENDMENT: MSME DUES DISALLOWANCE POST BUDGET, 2023

Amendment in Section 43B of Income Tax Act, 1961 (Certain expenses to be allowed on payment basis) by insertion of new clause (h) with effect from 01.04.2024.

Introduction: The recent amendment to Section 43B of the Income Tax Act, effective from April 1, 2024, introduces a new clause (h) with a specific focus on Micro and Small Enterprises (MSMEs). This socio- economic welfare measure aims to ensure timely payments to these entities by modifying the deduction provisions outlined in Section 43B.

Brief Background: –

The Finance Bill, 2023 introduced a significant amendment to the Income Tax Act, 1961 by adding a new clause

(h) to Section 43B. This inclusion is designed as a Socio-Economic Welfare Measure, primarily targeting Micro and Small companies to ensure timely payments. Section 43B of the Act currently outlines specific deductions that are permissible only upon actual payments.

The proposed amendment, reflected in the new Section 43B (h), specifies the following:

“Section 43B (h): 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.”

Upon a thorough examination of the language used in Section 43B(h), it is evident that the amended provisions will exclusively apply to micro and small enterprises. Medium enterprises are explicitly excluded from the scope of these provisions. This interpretation is crucial in understanding the targeted applicability of the amendment, which focuses specifically on the requirements of micro and small businesses, excluding those categorized as medium enterprises.

This clause explicitly mandates that payments to Micro and Small enterprises must be made within the timeframe specified in Section 15 of the Micro, Small, and Medium Enterprises Development Act, 2006. Adherence to this stipulated time duration is crucial for qualifying for the deduction of the sum owed to these micro and small enterprises. This amendment aims to promote timely payments and support the economic welfare of Micro and Small businesses.

The mentioned amendment exclusively pertains to micro and small enterprises. But it is crucial to note the definition of “Enterprise” as per the MSMED Act. So let us understand the definition of Enterprise as per MSMED Act.