[Opinion] Implications of Amendment to Section 43B proposed in Finance Bill 2023

CA Ved Jain – [2023] 148 taxmann.com 89 (Article)

The Finance Minister while presenting the Budget has announced various measures to promote MSME. The Hon’ble Minister stated that MSME are growth engines of our economy. In order to promote timely payments to micro and small enterprises, the Hon’ble Minister proposed to include payments made to such enterprises within the ambit of section 43B of the Income Tax Act. This will mean that while computing income of any business or professional entity, deduction for purchase of any goods/services availed from Micro and Small Enterprises shall be allowed only when payment is actually made. The payment for such purchases or services will be allowed on accrual basis only if the payment is within the time mandated under the Micro, Small and Medium Enterprises Development Act (‘MSMED’). As per section 15 of the MSMED Act, payments to Micro and Small enterprises is to be made before the Appointed Day. The Appointed Day is 15 days (which can be up to 45 days in case there is an agreement in writing) from the day of actual delivery of goods or the rendering of services.

Further, as per the proposed amendment, the benefit of proviso to section 43B which allows deduction in respect of the sum which is actually paid by the assessee on or before the due date of furnishing of return of income under section 139(1) in respect of various other deductions such as tax, duty, cess, interest to banks, financial institutions etc. shall not be applicable in respect of such payments to Micro and Small Enterprises.

The implication of this proposed amendment will be that in case any entity carrying on business or profession has made purchase of any goods/services from a Micro or Small enterprise and the payment for such purchases or services has not been made during the year and it is outstanding as on 31st march, the same will not be allowed as a deduction while computing business income with the result that the income will go up by the amount of such outstanding as on 31st march except where such outstanding payment as on 31st March are falling within the period of 15 days or 45 days (where there is an agreement) from the date of 31st March and payment of the same is made in the subsequent period within the period of 15 days or 45 days, as the case may be, from the date of delivery of goods or availing of services.

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