The document “MSME Income Tax Sec 43B Amendment w.e.f. 01.04.2023” provides detailed information about the amendments to Section 43B of the Income Tax Act, 1961, applicable from the Financial Year starting on April 1, 2023, and relevant to the Assessment Year 2024-25.
The Key Points of the MSME Income Tax Sec 43B Amendment
Amendment Overview
The amendment aims to promote timely payments to Micro and Small Enterprises (MSEs) that are UDYAM registered. It specifies that any expenses claimed related to goods or services received from these MSEs must be paid within a stipulated time frame to be allowed as a deduction for income tax purposes.
Disallowance of Expenses
If the payment for such expenses is not made within the agreed-upon time (maximum 45 days) or 15 days from the acceptance of the invoice in the absence of a written agreement, the expense will be disallowed and added back to taxable income under Section 43B(h) of the Income Tax Act.
Payments within the Financial Year
Payments made within the financial year but after the specified time limit will be allowed, but the assessee will be liable for interest, which is disallowed forever.
Payments in Subsequent Financial Year
If payments are made after the financial year, the expense will be allowed in the year of payment. Interest will be provided as prescribed and disallowed forever.
Calculation of Interest
Interest is calculated at three times the interest rate notified by RBI, compounded monthly, if the payment exceeds the specified time limit.
Exceptions
The provisions of Section 43B do not apply to assessees who opt for presumptive taxation under Sections 44AD & 44ADA.
UDYAM Registered Entities
The amendment distinguishes between Micro, Small, and Medium Enterprises based on their registration under UDYAM and applies differently to each category.
Action Points for Compliance
The document outlines several action points for entities to ensure compliance with the new amendment. These include verifying supplier registration, maintaining timely payments, and ensuring proper accounting and documentation practices.
GST Implications
There are also implications for the Goods and Services Tax (GST), particularly concerning the Input Tax Credit (ITC) under the CGST Act, 2017.
Disclaimer
The document contains a disclaimer stating that the views expressed are of the author and are for informational purposes only.
This amendment is a significant change for businesses dealing with MSEs, emphasizing the importance of timely payments and accurate record-keeping to avoid tax implications.
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