 for MSME Payments.jpg)
The Finance Act 2023 introduced a crucial amendment to Section 43B(h) of the Income Tax Act, effective from April 1, 2024 (AY 2024–25 onwards), linking tax deductions to timely payments for Micro and Small Enterprises (MSMEs).
Key Provisions of Section 43B(h)
Deduction Timing: Any outstanding amount payable to a registered Micro or Small Enterprise is allowed as a business expense deduction only if the payment is made within the time limits specified by the MSMED Act, 2006.
Delayed Payment: If payment is delayed beyond the limit, the deduction is permitted only in the financial year when the actual payment is made, irrespective of the accrual method used by the buyer.
Payment Deadlines Under the MSMED Act
- With a Written Agreement: Payment must be made within the agreed credit period, not exceeding 45 days from the date of acceptance of goods or services.
- Without a Written Agreement: Payment must be made within 15 days (the "appointed day") from the date of acceptance.
Action Points for Businesses (Buyers)
- Verify Supplier Status: Obtain Udyam Registration Certificates from all suppliers to confirm their MSME status.
- Streamline Payables: Ensure your accounts payable processes prioritise payments to MSMEs within the 15/45-day window.
- Consequences: Delayed payments attract penal interest at three times the RBI bank rate, which is disallowed as a tax deduction.