Urgent attention is required and is most important for the balance sheet and income tax return for FY 23-24 onwards. You must read this completely, otherwise there may be huge income tax liabilities in the balance sheet for FY 23–24 onwards.
The Finance Act-2023 made a drastic and draconian amendment to Section 43B by way of the insertion of clause (h) in the said section applicable from FY 23–24 onwards. The said amendment on one side is very helpful to the MSME sector enterprises, but on the other side, it is very dangerous to the business community itself.
Please note that from FY 23–24 onwards
- If any creditor in your balance sheet who is registered under MSME is unpaid as of 31-3-2024, then the corresponding purchase from such creditors shall be disallowed, and income tax will be required to be paid on such purchase amount.
There is no question about the genuineness of the purchase in this case. Disallowance is due to non-payment
- Hence, we must check that any creditor who is registered under MSME in the Micro or Small category must not be outstanding for more than 15 or 45 days.
- Hence, please ensure that payment to all such creditors is made in time; otherwise, full tax would be payable on such an unpaid amount, resulting in a huge additional tax liability.
Tax auditors will have to compulsorily report the same in the audit report
As per the insertion of clause (h) to Section 43B, from 1-4-2023 onwards, any amount remaining unpaid as at year-end (say, March 31, 2024) to any creditors, being any micro or small enterprise, whether for goods or services, beyond 45 days or a lesser period if so agreed or 15 days if nothing specifically agreed, shall be added to your taxable income and would be allowed as a deduction in the year of payment thereof.
Thus, keeping such creditors unpaid is a ticking tax bomb.
Definition of Micro Enterprise
Microenterprises are the enterprises having
- Turnover <= 5 Crores AND
- Investment in Plant and Machinery: <= 1 Crore.
(Both conditions have to be satisfied.)
Definition of Small Enterprise
Small enterprises are the enterprises having
- Turnover <= 50 crores and
- Investment in Plant and Machinery: <= 10 Crore.
(Both conditions have to be satisfied.)
Medium enterprises are not covered by this clause.
The author can also be reached at sohrabh2006@gmail.com.
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