MSMEs Year End Payments u/s 43B(h): 10 Point Checklist

Vivek Jalan | Last updated: 04 March 2024

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This article provides a 10-point checklist to help businesses comply with Section 43B(h) regarding payments to Micro and Small Enterprises (MSMEs). It covers identifying MSME status, understanding applicability for traders and medium enterprises, and verifying payment types like capital expenditure. The checklist also details how to determine due dates, handle advance payments, and avoid interest liabilities.

Section 43B(h): Compliances for All (including traders and MSE buyers)

1. Send a letter to all vendors to ascertain their MSME status and get their RCs for FY 2023–24.

1A. In case no reply is received, then scrutinize their invoices, POs, etc where they might have mentioned their MSME status.

2. Ascertain whether they are small or micro enterprises or not. If they are 'Medium', 43B(h) is not applicable.

MSME Year End Payments: 10 Point Checklist

3. Ascertain whether they are traders, manufacturers, or service providers. In case they are 'traders', 43B(h) is not applicable.

4. Ascertain whether the payments made to them are "Capex" items or not. If the payments are for 'capex items', 43B(h) is not applicable.

5. Ascertain whether there is any written contract with them or not regarding payment. If 'not', then it is better to have a written contract with them regarding payment terms.

6. Find out the due date, i.e., the date of delivery of goods or services, the date of acceptance, or the date of deemed acceptance. The 'due date' of 15/45 days is calculated from'such date' only.

7. Handover a check on the 'due date' at least. It would be accepted as the 'date of payment'

8. See the 'advance payments' made to MSEs. Take the same as a deduction under Sec 43B, even if they are not debited to P/L A/c.

9. Ensure that you're not liable to pay any interest to MSMEs. Such interest is disallowable.

10. In case you falter, then ascertain whether you're a trust, tax is payable under MAT, or you are under presumptive taxation under 44AD, 44ADA, 44AE, 44BBB, and 115VA. In such cases, you're exempt from the rigors of Sec 43B(h).

FAQ :

Section 43B(h) relates to the deductibility of payments made to Micro and Small Enterprises (MSMEs) for goods or services, stipulating that such payments must be made within a specified timeframe to be allowed as a deduction.

This section applies to all businesses making payments to MSMEs, including traders and buyers of goods or services from MSMEs.

Section 43B(h) is not applicable if the supplier is a 'Medium' enterprise, a 'trader', or if the payment is for 'capex' items. Certain entities like trusts, those under MAT, or presumptive taxation schemes are also exempt.

The 'due date' for MSME payments is calculated from the date of delivery of goods or services, the date of acceptance, or the date of deemed acceptance, and the 15/45-day payment period starts from this 'such date'.

If a business fails to pay MSMEs within the stipulated time, the payment may be disallowed as a deduction in that financial year, and the business may also be liable to pay interest to the MSME, which is disallowable for tax purposes.

Yes, it is advisable to have a written contract with MSMEs regarding payment terms to clearly define the agreed-upon payment schedule.

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About the Author

Vivek Jalan

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Mr. Vivek Jalan is a FCA, Qualified LL.M (Constitutional Law) and LL.B. He is the Chairman of The Fiscal Affairs and Taxation Committee of The Bengal Chamber of Commerce and Industry. He is the Convenor on Indirect Taxes of the CII- Economic Affairs and Taxation Committee (ER); He is also a visiting faculty for Indirec ... Read more

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