INTRODUCTION:
In the realm of income tax regulations, Section 43B plays a pivotal role for businesses and professionals. Recently amended, this section outlines specific expenses eligible for deduction under ‘Income from business and profession.’ Notably, the amendment focuses on payments to Micro, Small, and Medium Enterprises (MSME) registered suppliers.
SECTION 43B OVERVIEW:
Section 43B of the Income Tax Act lists expenses eligible for deduction only in the year of actual payment, regardless of when the obligation arises. This implies that deductions can be claimed only when the payment is made, not when the liability is incurred.
RECENT AMENDMENT FOR MSME SUPPLIERS:
Effective from April 1, 2024, a crucial amendment pertains to payments to MSME registered suppliers. If payments are made after the stipulated period, deductions will only be allowed when the payment is actually made. This departure from traditional practice necessitates businesses to reassess their payment timelines for compliance with the new regulations.
FREQUENTLY ASKED QUESTIONS (FAQs) ON AMENDMENT IN SECTION 43B:
Question 1: When does this amendment come into effect? Answer: The amendment is applicable from the Assessment Year 2024-25, corresponding to the Financial Year 2023-24.
Question 2: Does it apply to amounts outstanding to micro & small enterprises as of March 31, 2023? Answer: No, the amendment doesn’t apply to amounts outstanding to micro & small enterprises as of March 31, 2023. Its implementation starts from the Financial Year 2023-24.
Question 3: Is MSMED Act registration mandatory for disallowance under section 43B(h)? Answer: Yes, only registered micro & small enterprises under the MSMED Act fall under the ambit of section 43B(h). Unregistered suppliers are exempt from this provision.
Question 4: How can one verify if a supplier is registered under the MSMED Act? Answer: Utilize the MSME Portal to verify registration and enterprise type using the registration number. Post-amendment, many suppliers include their MSME registration number on invoices.
Question 5: What if a supplier fails to intimate MSME registration to the buyer? Answer: If the supplier doesn’t inform the buyer of MSME registration, no disallowance can occur under section 43B(h) due to the absence of information.
Question 6: Is section 43B(h) applicable to traders with MSME registration? Answer: No, section 43B(h) doesn’t apply to traders as the definition of enterprise under the MSMED Act excludes them. Retail & wholesale trade MSMEs have limited benefits under the MSMED Act.
Question 7: How does section 43B(h) apply to suppliers engaged in both trading and manufacturing/services? Answer: In such cases, section 43B(h) can be considered applicable for dues outstanding to such suppliers.
Question 8: Does section 43B(h) apply to outstanding dues for capital expenditure? Answer: No, as capital expenditure is not an allowable expense under the Income Tax Act, disallowance under section 43B(h) doesn’t apply.
Question 9: How are year-end provisions treated for disallowance under 43B(h)? Answer: If actual delivery hasn’t occurred by the end of the year, no disallowance can be made under section 43B(h).
Question 10: What happens when a supplier gets paid after 15/45 days but within the same financial year? Answer: Deduction can be claimed in the same financial year as payment is made.
Question 11: Can deduction be claimed if payment is made after 15/45 days but before filing the return of income? Answer: No, the benefit of the first proviso to section 43B is not available for dues to micro & small enterprises. The deduction can only be claimed in the year of actual payment.
Question 12: Does section 43B(h) apply to assesses opting for presumptive taxation (44AD/44ADA/44AE)?
Answer: No, section 43B does not apply to assesses opting for presumptive taxation.
Conclusion:
The recent amendment to Section 43B introduces both opportunities and challenges for micro & small suppliers and places additional responsibilities on taxpayers and auditors. Understanding the interplay between provisions of the Income Tax Act and the MSMED Act is essential to navigate these legislative changes effectively.
