CA Anshu Bansal
Quick Summary
Introduction The Income-tax Act, 1961 (for brevity Act) permits the deduction of expenses based on the accounting method adopted by the taxpayer. If the taxpayer uses the cash system of accounting, the deduction has been granted based on actual payments made. However, if the taxpayer follows the
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FAQ :
Section 43B(h) is a new provision introduced by the Finance Act, 2023, which states that any sum payable by a taxpayer to a micro or small enterprise beyond the time limit specified in Section 15 of the MSMED Act, 2006, shall be allowed as a deduction only in the year of actual payment.
This provision applies to payments made in the previous year 2023-24 (assessment year 2024-25) and subsequent assessment years.
Only micro and small enterprises as defined under Section 2 of the MSMED Act, 2006, and who have filed a memorandum with the specified authority (Udyam Registration Portal), are considered for this provision. Medium enterprises are excluded.
The MSMED Act, 2006, mandates payment within a mutually agreed period, not exceeding 45 days from the date of acceptance of goods or services. If no agreement exists, payment is due within 15 days of acceptance (the 'appointed day').
Yes, advance payments made to micro and small enterprises are allowed as a deduction in the year of payment itself. Also, this section does not apply to taxpayers opting for presumptive taxation schemes under Sections 44AD, 44AE, 44ADA, and 44BBB.
Yes, Section 43B(h) can apply to payments for capital expenditure if a 100% deduction is otherwise allowable under the Act. However, it does not apply to depreciation under Section 32.
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