Compliance Roadmap: Navigating New MSME Regulations

Posted on March 14, 2024November 19, 2024

Analysis of Section 43B(h) of the Income Tax Act and Step-by-Step Action Plan for Compliance. Covering configurations needed in Tally ERP, SAP S/4 Hana or Business One, Zoho Books softwares.

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The Finance Act 2023 inserted Section 43B(h), which stipulates that any sum owed to Micro, Small and Medium Enterprises (MSME) for goods supplied or services given may be deducted in the same year if it is paid within the deadline stipulated by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

This amendment aims towards promoting prompt payments to micro and small businesses. The assessment year 2024–2025 and any following years will be covered by this change, which will come into effect on April 1, 2024.

The newly added clause (h) states that any sum payable by the assessee to a MSME beyond the time limit set in Section 15 of the MSMED Act, 2006, is not eligible for deduction.

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.

See the table below for better understanding

In the case of late payment to an MSME, interest is applicable.

Rate of interest: Compound interest at three times of the bank rate notified by the Reserve Bank of India (RBI).

Date from which interest is payable: Appointed day or the date as per the agreement, as the case may be.

Deduction of this interest is not allowed as an expense, as per the Income-Tax Act (ITA), 1961.

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March 17, 2024 at 8:43 pm

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