Home » INCOME TAX » Sec 43 B(h) » Decoding Section 43B(h): A Game Changer for MSMEs and Businesses in India
Search

Sharanya Radhakrishnan Nair

Facebook Twitter Youtube Instagram Linkedin

Decoding Section 43B(h): A Game Changer for MSMEs and Businesses in India

The Indian government, through the Finance Act, 2023, introduced a significant amendment to the Income Tax Act, 1961, by inserting clause (h) in Section 43B. This seemingly inconspicuous change has the potential to significantly impact businesses and micro, small, and medium enterprises (MSMEs) across the country. So, what exactly is Section 43B(h), and how does it affect you?

Understanding the Core:

Before this amendment, businesses could claim deductions for their expenses, irrespective of when the actual payment was made. However, Section 43B(h) now mandates timely payments to registered micro and small enterprises (MSEs) as defined under the MSMED Act, 2006. Here’s the gist:

  1. Any sum payable by a business to an MSE must be paid within the time limit specified in Section 15 of the MSMED Act (usually 45 days) to be eligible for deduction.
  2. Delayed payments: If the payment exceeds the stipulated timeframe, the deduction will be disallowed in that financial year. You can only claim it in the year you actually make the payment.

The Impact:

This amendment aims to address the long-standing issue of delayed payments faced by MSMEs, often hindering their cash flow and growth. For businesses, it necessitates:

  • Stricter payment compliance: Businesses must adhere to the payment deadlines to claim deductions, potentially impacting their financial planning and cash flow management.
  • Enhanced transparency: Accurate tracking of payments to MSEs becomes crucial for tax purposes and compliance.
  • Potential tax implications: Delayed payments could lead to higher tax liabilities due to disallowance of deductions.

Benefits and Opportunities:

While adhering to stricter timelines might seem challenging, several advantages emerge:

  • Improved cash flow for MSMEs: Timely payments ensure financial stability and growth for MSEs, boosting their economic contribution.
  • Level playing field: Equal treatment for all businesses encourages fair competition and discourages unhealthy payment practices.
  • Strengthened business relationships: Prompt payments foster trust and stronger partnerships between businesses and MSMEs.

Navigating the Change:

To adapt to this new regulation, businesses can:

  • Review payment terms: Negotiate and revise contracts with MSEs to ensure compliance with the time limits.
  • Implement robust payment tracking systems: Monitor outstanding dues to MSEs and prioritize timely payments.
  • Seek professional guidance: Consult tax advisors to understand the implications and ensure compliance.

Conclusion :

Section 43B(h) marks a significant step towards ensuring financial security for MSMEs and promoting ethical business practices. While adapting to the new norms might require adjustments, the long-term benefits for businesses and the overall economy are undeniable. By embracing transparent and timely payment practices, we can create a more sustainable and equitable business ecosystem in India.

Frequently Asked Questions on ITR-2 Form:

Yes, ITR-2 is perfect for individuals with income from multiple sources, including salary, professional fees like freelance work, and business income.

Absolutely! You can claim various deductions under Section 80D for medical expenses incurred for yourself, your spouse, and dependent parents.

No, attaching physical documents is not required for electronically filed ITR-2s. However, it’s advisable to retain relevant documents for at least seven years for reference or potential verification by the Income Tax department.

You can e-verify your ITR-2 through various methods, including using Aadhaar OTP, internet banking, or your bank Demat account.

Generally, no, depreciation deductions are primarily for business assets.

Yes, as long as they are justifiable business expenses.

Table of content​

1