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Section 43B (h) of the Income Tax Act, 1961 is a provision specifically relevant to MSME Enterprises.



Today everyone is talking about section 43B (h) of the Income Tax Act which is related to MSME Enterprises. Everything is curious to know when this will be applicable. What will happen if it becomes applicable? Will it apply to everyone? Today we will explain everything about this section in this article.


1. Section 43B i.e. certain deductions to be only on actual payment :

Clause 43B (h): Any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006, shall be allowed only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.


2. Section 15 of MSMED Act, 2006 :

Section 15 envisages to ensure timely receipt of payment for their goods and services by micro and small enterprises. It casts an obligation upon the buyer of any goods and services, to make the payment to the supplier, by the specified date as follows:


a. When there is an agreement in writing:

On or before the date agreed upon between them in writing but not later than 45 days from the date of acceptance or the day of deemed acceptance.


b. When there is no agreement:

Before the appointed day, which means the day following immediately after the expiry of 15 days from the day of acceptance or the day of deemed acceptance.


Buyer means a person buying any goods or receiving any services from a supplier for consideration.


Supplier means a micro or small enterprise which filed a memorandum under section 8(1) and includes (a) National Small Industries Corporation, (b) Small Industries Development Corporation of a state/Union Territory, and (c) a registered company. Co-operative society, trust or body, selling goods or rendering services produced or provided by micro or small enterprises.


Day of acceptance means

  1. The day of actual delivery of goods or rendering of services, or

  2. Where the buyer makes any objection in writing within 15 days from the day of delivery of goods or rendering the services, the day on which the supplier removes such objection.

Day of deemed acceptance means the day of actual delivery of the goods or rendering the services, where the buyer makes no objection in writing within 15 days from such day.


3. Applicability of section

This section is applicable only for the payment to Micro and Small Enterprises registered under the MSMED Act.

 

4. Non-Applicability of section

This section does not apply to the following persons:

  1. If the supplier is not registered under the MSMED Act,

  2. If the supplier is registered under the category of Medium Enterprise,

  3. If the supplier is registered under the category of traders under the MSMED Act,

  4. If the assessee files the Income tax return under presumptive taxation i.e. section 44AD,44ADA, 44AE

5. Classification of Enterprises under MSMED Act, 2006

Composite Criteria

Investment in Plant &

Machinery or Equipment

Turnover

Micro

Does not exceed 1 crore rupees

Does not exceed 5 crore rupees

Small

Does not exceed 10 crore rupees

Does not exceed 50 crore rupees

Medium

Does not exceed 50 crore rupees

Does not exceed 250 crore rupees


6. Registration under MSMED Act, 2006 :

Any person who intends to establish a micro, small, or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates, or proof. On registration, an enterprise (referred to as "Udyam" in the Udyam Registration portal) will be assigned a permanent identity number to be known as "Udyam Registration Number". An e-certificate, namely, the "Udyam Registration Certificate" shall be issued upon completion of the registration process.


Registration process

  • The form for registration shall be as provided in the Udyam Registration portal https://udyamregistration.gov.in.

  • There will be no fee for filing Udyam Registration.

  • Aadhaar number is mandatory for Udyam Registration.

  • The Aadhaar number shall be of the proprietor in the case of a proprietorship firm, of the managing partner in the case of a partnership firm, and of a karta in the case of a Hindu Undivided Family (HUF).

  • In the case of a company or a limited liability partnership or a cooperative (society or a society or trust, the organization or its authorized signatory shall provide its GSTIN and PAN along with its Aadhaar number.

Clarification on GSTIN. The Ministry of Micro, Small and Medium Enterprises vide Notification No. S.O. 1055(E), dated 05.03.2021 has amended the previous Notification No. S.O. 2119(E), dated 26.06.2020 to provide that the exemption from the requirement of having GSTIN shall be as per the provisions of the Central Goods and Services Tax Act, 2017. In case of any proprietorship enterprise not registered under any Act or rules of the Central Government or the State Government, the proprietor may use his or her PAN for registration of the enterprise in the Udyam Registration portal and for all other types of enterprises PAN shall be mandatory.

  1. In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for previous years when it did not have PAN shall be filled up on self-declaration basis.

  2. The enterprises having exports and wanting to avail of the benefits accruing to MSME must provide their PAN. PAN is mandatory w.e.f. 01.04.2021.

  3. In case of a new enterprise having no PAN, Forms has to be filled up on self-declaration basis.

  4. No enterprise shall file more than one Udyam Registration.

  5. Any number of activities including manufacturing or service or both may be specified or added in one Udyam Registration.

7. Request to Supplier for Submitting MSME Certificate :

The buyer has to ask the supplier to submit his MSME Certificate.

Sample Letter sent to all suppliers for MSME Registration Certificate

Dear Vendor,

As part of our ongoing commitment to comply with regulatory requirements and support the growth of Micro, Small, and Medium Enterprises (MSMEs), we are reaching out to all our vendors to update our records in accordance with the MSME Act.

We kindly request that you submit your MSME registration certificate, if you are registered as an MSME, within the next 15 days from the date of this email. This will enable us to provide the necessary support and benefits that are accorded to MSMEs under the relevant regulations and policies.


Please email a copy of your MSME certificate to ensure that the document is legible and the registration number is clearly visible and the updated category is clearly defined in the certificate.


If we do not receive your MSME certificate within the specified timeframe, it will be deemed that your organization is not registered or not eligible as an MSME.


We understand that not all businesses may be registered as MSMEs and this request is only applicable to those who are currently registered under the MSME Act.

We appreciate your prompt attention to this matter and your continued partnership. Should you have any questions or require assistance, please feel free to contact.


Thank you for your cooperation.

Regards Authorized Signatory


8. Verification of Udyam Registration Number

Anyone can verify the Udyam Registration Number to check Section 43B (h) applicability.


9. Examples on Section 43B (h)

Deduction Allowed in Financial Year when payment is made


Invoice Date

Due Date as per MSME Act and as per Section 43B (h) of the Income Tax Act, 1961

Actual Date of Payment

Deduction Allowed in FY

01.03.2024

15.04.2024

18.04.2024

FY 2024-25

Disallowed in FY 2023-24

20.03.2024

04.04.2024

18.04.2024

FY 2024-25

Disallowed in FY 2023-24

01.03.2024

15.04.2024

14.04.2024

FY 2023-24

20.03.2024

04.04.2024

03.04.2024

FY 2023-24

01.03.2024

16.03.2024

01.04.2024

FY 2024-25

Disallowed in FY 2023-24

16.03.2024

31.03.2024

01.04.2024

FY 2024-25

Disallowed in FY 2023-24


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