Clarity regarding applicability of Section 43B(h) of Income Tax Act 2006

In budget 2023, Govt has added a new Section namely 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 (27 of 2006),shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him

 Question Arises

1. Who is covered under MSME Act 2006 ?

Ans:  Any person 

1. engaged in  the manufacture or production of goods

2. engaged in providing or rendering of services

Interestingly it does not cover any Wholesale or Retail Trade

Yes , a trader can registered under MSME Act after 02.07.2021 wherein Govt allows Wholesale or Retail Trade to be registered on Udyam Registration Portal.

However, benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only.

Hence only payment dues to manufacturer or person providing services would be liable to dis allowed in section 43(b)(h) if not paid within time limit.

1. What is the time limit to pay Micro and Small Suppliers?Ans:

1. 15 days if there is no clarity between Buyer and Supplier

2. 45 days (max), in case buyer and supplier have a terms of payment.

Now It is very Important to clarify that even the date of payment would be post March 2023, it would be disallowed if not paid within maximum permissible time i.e not beyond 45 days.

i.e 

For FY 2023-24, if Goods purchased from Traders, section 43(B)(h) not Applicable.

1. How to identify the Creditors are Registered in MSME or not ?

Ans: You have to ask for Declaration from them.

1. Whether Additional Tax Liability is Refundable after payment

Ans: In this scenario, after payment has been made by Asssessee, (in the year of Payment), 

that expenses will be allowed.

Further Quantum of Tax is to identify after proper calculation , so it would be advisable to Plan accordingly