
Established 1993


	Home About About Us Our Team Services India Setup Accounting & Reporting Audit & Assurance Corporate Compliance Direct & Indirect Taxation Human Resource & Payroll Mergers & Acquisitions Offshore Accounting Business Support Clientele Articles Calculators GST Calculator Tax Calculator TDS Calculator Calculate Net Profit Calculate Net Worth Effective Capital HRA NSC EMI Auto Loan Calculator Home Loan Calculator Get No. Of Instalment RERA Calculator Developers Calculator Home Buyer Delay Interest Home Buyer Refund Bulletins RBI SEBI Notification Circular Income Tax Service Tax Central Sales Tax Excise Matters Customs Company Law Labour Laws FEMA The LLP Act 2008 Accounting Standard (INDAS) Others GST VAT Delhi VAT Maharastra VAT Gujarat VAT Telangana VAT Tamil Nadu VAT IGST UTGST Compensation Cess IBC Regulation Utilities Rates of TDS TDS Rates for N.R.I us 195 Rates of Income Tax Depreciation Rates Companies Act Depreciation Rates Income Tax Act ROC Filing Fees (Cos Act, 2013) ROC Fee Structure (Cos Act, 2013) Cost Inflation Index IFSC Codes MICR Codes Rates of NSC Interest Gold and Silver Rates Rates of Stamp Duty LLP Fees National Industries Classification HSN Rate List Deduction u/s 80TTA Vs 80TTB Links Quick Links Important Links GST/VAT Links Ease Of Doing Business Acts Direct Tax Income Tax Act Wealth Tax Act Income Declaration Scheme 2016 Indirect Tax Service Tax(Finance Act, 1994) Central Sales Tax Act, 1956 The Central Excise Act, 1944 Customs Act, 1962 Entry Tax Act Corporate Laws Companies Act, 2013 Companies Act, 1956 LLP ACT SEBI Act, 1992 VAT Laws Delhi Value Added Tax Act, 2004 MVAT Act, 2002 West Bengal VAT Act, 2003 Tamilnadu VAT ACT, 2006 Karnataka Value Added Tax Act, 2003 Gujarat Value Added Tax Act, 2003 UP VAT Act, 2008 Rajasthan Value Added Tax Act, 2003 Punjab Value Added Tax Act Haryana Value Added Tax Act Telangana VAT Act 2005 Andhra Pradesh VAT Act, 2005 Bihar Value Added Tax Act, 2005 Other Statutes ESI Act, 1948 PF Act, 1952 Profession Tax Act The Indian Partnership Act, 1932 Societies Registration Act, 1860 Competition Act, 2002 Reserve Bank of India Act, 1934 MRTP Act, 1969 Equalisation Levy Act, 2016 Right To Information Act, 2005 FEMA, 1999 Maharashtra RERA RERA, 2016 Insolvency & Bankruptcy Code, 2016 Benami Property Act 1988 GST Laws IGST Act , 2017 CGST Tax Act, 2017 UTGST Act, 2017 GST (Compensation to States) Act Rules Direct Tax Rules Income Tax Rules Wealth Tax Rules 1957 Income Declaration Scheme Rules 2016 Indirect Tax Rules GST Valuation Rules , 2016 Service Tax Rules CST (Delhi) Rules, 2005 CST (Maharashtra) Rules Customs Valuation Rules Cenvat Credit Rules, 2017 Entry Tax Rules Corporate Laws Rules Companies Rules, 2014 LLP Rules, 2009 LLP Winding up Rules, 2012 Cos Unpaid Dividend Rules, 1978 VAT Laws Rules Delhi VAT Rules, 2005 Maharashtra VAT Rules, 2005 West Bengal VAT Rules, 2005 Tamilnadu VAT Rules, 2007 Karnataka VAT Rules, 2005 Gujarat VAT Rules, 2006 Uttar Pradesh VAT Rules, 2008 Rajasthan VAT Rules, 2006 Punjab VAT Rules Haryana VAT Rules, 2003 Telangana VAT Rules 2005 Andhra Pradesh VAT Rules, 2005 Bihar Value Added Tax Rules, 2005 Other Statutes Profession Tax Rules NBFC Deposits Directions, 1998 NBFC & Misc NBC (Advt) Rules, 1977 NBFC Auditor Report Directions, 2008 Delhi Labour Welfare Fund Rules, 1997 Cost records and audit Rules, 2014 Baggage Rules, 2016 Equalisation Levy Rules, 2016 NCLT And NCLAT Rules Insolvency & Bankruptcy Rules Benami Property Rules, 2016 GST Rules CGST Rules, 2017 IGST Rules 2017 Forms Income Tax Forms ROC Forms (Cos Act, 2013) ROC Forms (Cos Act, 1956) Income Declaration Forms Wealth Tax Forms Service Tax Forms Companies Unpaid Dividend Forms NBFCs Forms LLP Winding up FEMA Forms LLP Forms CGST Forms GST Forms Accounts and Records Advance Ruling Appeals and Revision Assessment and Audit Composition Demands and Recovery Input Tax Credit Inspection, Search and Seizure Offences and Penalties Payment of Tax Refund Registration Returns Transitional Provisions Value of Supply Careers Contact Us

DECODING SECTION 43B(H) : IMPACT OF DELAY IN MSME PAYMENTS

The Finance Act 2023 applicable for FY 2023-24 introduced an additional clause (h) into Section 43B, specifying that any payment due to a micro or small enterprise (MSME) exceeding the time limit of 15 days, or a maximum of 45 days, specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act), will be allowed as a deduction on payment basis. Let’s understand it in detail:

APPLICABILITY:

This section applies to every business entity in India, including companies, proprietorships, partnership firms, or LLPs, when an enterprise is buying goods or taking services from an enterprise registered under the MSMED Act, 2006.

This amendment takes effect from 1st April, 2024 and will accordingly apply in relation to the assessment year 2024-25 and subsequent assessment years.

WHAT ARE MSMEs?

The MSME sector in India plays a crucial role in employment generation, nurturing entrepreneurship, and promoting economic development in India. And that is why to protect their interests, the Central Government has come up with the new provision to ensure timely payments to them.

The Central Government, hereby notifies the following criteria for classification of micro, small and medium enterprises, namely :

a micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;

a small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees;

a medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

TIME LIMIT FOR PAYMENTS MADE TO MSMEs:

Business enterprises are required to pay MSMEs within 45 days, as per section 15 of the MSMED Act, 2006, depending on the presence of a written agreement. In the absence of a written agreement, payment should be made within 15 days. In case there is a written agreement, payment shall be made as per the agreed-upon timeline, not exceeding 45 days.

Additionally, several other laws have outlined provisions for the timely payment of dues to such enterprises.

You can refer to below examples for better understanding:

*Date of Invoice:*	*Due Date as agreed in written agreement:*	*Due Date as per MSME Act:*	*Deduction will be allowed in the FY:*
12/01/2024	26/02/2024	26/02/2024 (45 days from invoice date, in case there is written agreement)	If payment is made on or before 26/02/2024, or before 31/03/2024 then deduction will be allowed in year FY 2023-24. And if payment is made after 31/03/2024, then deduction will be allowed in the year of actual payment.
17/02/2024	01/04/2024	01/04/2024 (45 days from invoice date, in case there is written agreement)	If payment is made on or before 01/04/2024, then deduction will be allowed in year FY 2023-24. And if payment is made after 01/04/2024, then deduction will be allowed in the year of actual payment.
25/03/2024	08/05/2024	08/05/2024 (45 days from invoice date, in case there is written agreement)	If payment is made on or before 08/05/2024, then deduction will be allowed in year FY 2023-24. And if payment is made after 08/05/2024, then deduction will be allowed in the year of actual payment.
15/04/2024	29/05/2024	29/05/2024 (45 days from invoice date, in case there is written agreement)	If payment is made on or before 29/05/2024, or before 31/03/2025 then deduction will be allowed in year FY 2024-25. And if payment is made after 31/03/2025, then deduction will be allowed in the year of actual payment.

Note: If there is no written agreement, then payment should be made within 15 days.

CONSEQUENCES OF DELAY IN PAYMENT:

Increase in Taxable Income and Tax Liability: 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. So, if an enterprise has not made payment to MSME within 45 days, then it will attract the provision of Section 43(b)(h) and such payment will be allowed as deduction only in the financial year in which payment is actually made., thus increasing the taxable income due to non-deduction and increased tax liability for the current year.

Additional Interest: In the case of late payment to an MSME, Buyer will be liable to pay compound interest with monthly rests to the MSME supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. And deduction of this interest is not allowed as an expense under Income-Tax Act.

Additional ROC Compliance: *Specified companies should file Form MSME-1 when payments are due to MSME for more than 45 days from the date of acceptance of the services or goods, along with the reason for its delay.

*Specified companies are companies- that have obtained goods or services from the MSME, whose payments to the MSMEs exceed 45 days from the date of acceptance or deemed acceptance of the goods or services.

Hence, it is recommended to settle dues to MSMEs within the time limit as specified under Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) which is 45 days.

Hope this article was able to answer all your questions. If not, you can always contact us.

Curated By: Yash Jain