AMENDMENT TO SECTION 43B OF THE INCOME TAXCT, 1961

BY FINANCE ACT 2023

The Finance Act 2023 has added a new clause (h) to Sec. 43B of the Income Tax Act and is
made applicable from assessment year 2024-25 i.e. financial year 2023-24

Sec. 43B with the amendment reads as under:

“Section 43B.

Notwithstanding anything contained in any other provision of this Act, a deduction otherwise
allowable under this Act in respect of —

(a) To (g) ……………

(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 (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.

Provided that nothing contained in this section, except the provisions of clause (h), shall
apply in relation to any sum which is actually paid by the assessee on or before the due date
applicable in his case for furnishing the return of income under sub-section (1) of section 139 in
respect of the previous year in which the liability to pay such sum was incurred as aforesaid and
the evidence of such payment is furnished by the assessee along with such return”

The amendment is applicable to all Assesees having income from business or profession.

Thus, if the buyer assessee fails to make payment to any of his supplier, who is registered as a
“micro” or “small” enterprise under the MSMED Act, within the time specified under Sec. 15 of
the MSMED Act, he would not get the deduction of his purchases in the year of purchase but
would get the deduction only in the year of actual payment. The time limit for payment to micro
and small enterprises, as per Sec. 15 of MSMED Act, is 15 days or to the maximum 45 days if
there is a written agreement between the parties. Further, the amendment is applicable to all
payables whether against goods or services.

Summary:

If any payment is outstanding for more than 45 days to Micro And Small Enterprise Creditors
as on 31.03.2024, the same will be disallowed (as per the amendment made in section 43B) in
computing the taxable income and income tax will be paid on that. It will be allowed in the
respective financial year on the basis of actual payment to respective creditors.

CA. Roshan Agrawal, Partner D A V A & Associates, Chartered Accountants

+91 93309 80009 www.davaassociates.com
 CLARIFICATION OF IMPACT WITH EXAMPLES

Case Supply/bill Payment to be made as per Actual date Consequence

received On MSMED Act 2006 of payment

1 25/03/2024 – If written agreement, 28/03/2024 No impact as there would be

payment to be made within 45 no outstanding as on 31st
days ie. by 09/05/ 2024. March 2024.

– If no written agreement, 28/03/2024 No impact as there would be

payment to be made within 15 no outstanding as on 31st
days i.e. by 09/04/2024. March 2024.

2 25/03/2024 – If written agreement, 30/04/2024 No Impact as payment is

payment to be made within 45 made by specified time.
days ie. by 09/05/ 2024.

– If no written agreement, 30/04/2024 Would be disallowed as

payment to be made within 15 payment made after specified
days i.e. by 09/04/2024. date.

3 25/03/2024 – If written agreement, 15/05/2024 Would be disallowed as

payment to be made within 45 payment made after specified
days ie. by 09/05/ 2024. date in both situations.

– If no written agreement, 15/05/2024 Would be disallowed as

payment to be made within 15 payment made after specified
days i.e. by 09/04/2024. date in both situations.

To properly understand the impact of this amendment, it is necessary to know as to which

supplier would fall under this category. The classification of “micro, small and medium”
enterprises as per MSMED Act is as below:

BASIS MICRO SMALL MEDIUM

Investment in Plant, Not More than 1 Not More than 10 Not More than 50 Crores
Machinery or equipment Crore Crores

Annual Turnover Upto 5 Crores Upto 50 Crores Upto 250 Crores

Please note that, in amendment to Sec. 43B, only “micro” and “small” enterprises are covered.

Therefore, payment to “medium” enterprises is out of the purview of this amendment.

CA. Roshan Agrawal, Partner D A V A & Associates, Chartered Accountants

+91 93309 80009 www.davaassociates.com
To further understand the overall implications of this amendment some of the relevant
provisions of the MSMED Act 2006 are given below:

Sec. 15 – Liability of buyer to make payment:

Where any supplier supplies any goods or renders any services to any buyer, the buyer shall
make payment therefor on or before the date agreed upon between him and the supplier in
writing or,

where there is no agreement in this behalf, before the appointed day:

Provided that in no case the period agreed upon between the supplier and the buyer in writing
shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Sec. 16 - Date from which and rate at which interest is payable

Where any buyer fails to make payment of the amount to the supplier, as required under
section 15, the buyer shall, notwithstanding anything contained in any agreement between the
buyer and the supplier or in any law for the time being in force, be liable to pay compound
interest with monthly rests to the supplier on that amount from the appointed day or, as the
case may be, from the date immediately following the date agreed upon, at three times of the
bank rate notified by the Reserve Bank.

Sec. 22. – Requirement to specify unpaid amount with interest in the annual statement of
accounts

Where any buyer is required to get his annual accounts audited under any law for the time
being in force, such buyer shall furnish the following additional information in his annual
statement of accounts:

(i) the principal amount and the interest due thereon (to be shown separately)
remaining unpaid to any supplier as at the end of each accounting year;
(ii) the amount of interest paid by the buyer in terms of section 16, along with the
amount of the payment made to the supplier beyond the appointed day during each
accounting year;
(iii) the amount of interest due and payable for the period of delay in making payment
(which have been paid but beyond the appointed day during the year) but without
adding the interest specified under this Act;
(iv) the amount of interest accrued and remaining unpaid at the end of each accounting
year; and
(v) the amount of further interest remaining due and payable even in the succeeding
years, until such date when the interest dues as above are actually paid to the small
enterprise, for the purpose of disallowance as a deductible expenditure under
section 23.

CA. Roshan Agrawal, Partner D A V A & Associates, Chartered Accountants

+91 93309 80009 www.davaassociates.com