In recent times, there has been a buzz around Section 43B(h) of the Income Tax Act, and people are curious about its implications, particularly in relation to agreements and its coverage of traders registered as micro or small enterprises. Let's break down these questions and explore the recent changes in Section 43B that specifically affect Micro and Small Enterprises (MSMEs).

Understanding Section 43B Overview

• Section 43B of the Income Tax Act deals with deductible expenses for businesses or professionals, but the catch is that these expenses can only be claimed in the actual payment year, not when they accrue. The recent amendment in Section 43B brings a significant change, specifically focusing on payments to micro and small enterprises section 43B of the Income Tax Act is a provision that deals with certain expenses that can be claimed as deductions by businesses or professionals while computing their taxable income. However, these expenses can only be claimed in the actual payment year, not in the accrual year. The payment must be made on or before the due date of filing the return of income for that year. And in cases amount due to small enterprises, shall be paid on or before the time limit specified by The MSMED Act. The proof of payment must be furnished along with the return.

Agreement Duration and Section 43B(h)

• Many wonder what happens if an agreement between a supplier and purchaser sets a payment duration exceeding 45 days, as specified in Section 43B(h). Well, according to my opinion  Section 23 of the Indian Contract Act, any agreement that goes against the law is considered void. In simple terms, if an agreement violates Section 43B(h), parties need to revisit it and make amendments to align with the law.

Does Section 43B(h) Cover Traders Registered as MSMEs?

• A plain reading of Section 43B(h) suggests that it doesn't cover traders registered as micro or small enterprises. The Micro, Small and Medium Enterprises Development Act, 2006, defines micro and small enterprises, but the coverage mainly pertains to manufacturers and service providers. Therefore, traders might not fall under the ambit of Section 43B(h) according to my opinion.

Recent Amendment and its Impact

• The latest amendment specifies that payments to MSMEs must adhere to the payment terms outlined in the MSME Act, 2006. Micro-enterprises must be paid within 15 days, small enterprises within 30 days, and medium enterprises within 45 days. This amendment aims to address the issue of delayed payments and ensure timely settlements.

Compliance Requirements and Impact on MSMEs

• Auditors now play a crucial role in ensuring compliance with Section 43B and reporting it in the Tax Audit Report. For MSMEs, this amendment acts as a protective measure, putting a check on delayed payments and easing financial strains. Buyers collaborating with MSMEs must adapt to the new regulations, as timely payments are now not just good practice but a regulatory necessity for claiming deductions.

Conclusion

• In conclusion, the recent changes in Section 43B are a positive step towards supporting MSMEs and creating a more equitable business environment. The amendment strengthens financial resilience for micro and small enterprises, emphasizing responsible financial practices and timely settlements. It's a paradigm shift that benefits both MSMEs and their collaborators, fostering a supportive ecosystem for these crucial contributors to the Indian business landscape.