UNDERSTANDING OF SECTION 43B(H) OF THE INCOME TAX ACT,1961
Section 43B(h) of Income Tax Act,1961
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.
In other words, any sum payable by an entity to a micro or small enterprise beyond the time limit specified in Section 15 of the MSME Act, 2006 shall be allowed only in computing the income of the previous year in which the sum has been actually paid.
Applicability
1. This section shall be applicable from the assessment year 2024–2025, that is, Financial Year 2023-24.
2. Clause (h) of Section 43B comes into effect from April 1, 2024.
3. This clause is applicable when an enterprise is buying goods or taking services from an enterprise registered under the MSMED Act, 2006. Notably, the registration of the buyer under the MSMED Act, 2006, is not mandatory.
4. It is not applicable to transactions on or before 31st March 2023. Non-Applicability
This Section is not applicable to:
1. Medium enterprises.
2. Unregistered MSMEs
3. Traders (since their registration on the portal is solely for the purpose of priority sector lending).
