Budget 2023 Proposal:
The government proposes to include payments made to micro and small enterprises within the ambit of section 43B of the Income Tax Act.
Accordingly, a new clause (h) is proposed to be inserted in section 43B of the Act to provide that 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 (MSMED) Act, 2006 shall be allowed as a deduction only on actual payment.
Points to Note:
The proposed section is about allowance or disallowance of payments to micro or small enterprise. Medium Enterprises are not covered in the same.
Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time specified in the written agreement, which cannot be more than 45 days.
In the absence of a written agreement, the payment must be made within 15 days.
The above may give arise to following scenarios:
| Sr. No. | Bill Date | Payment Due Date as Per Agreement | Due Date Of Payment As Per MSMED Act | Actual Payment Date | Deduction Allowed in which FY |
| 1 | 01/02/2024 | 17/03/2024 | 17/03/2024 | 30/03/2024 | 2023-24 |
| 2 | 01/02/2024 | 17/03/2024 | 17/03/2024 | 02/04/2024 | 2024-25 |
| 3 | 01/02/2024 | 02/04/2024 | 17/03/2024 | 30/03/2024 | 2023-24 |
| 4 | 01/02/2024 | 02/04/2024 | 17/03/2024 | 02/04/2024 | 2024-25 |
| 5 | 01/03/2024 | NO Agreement | 15/03/2024 | 30/03/2024 | 2023-24 |
| 6 | 01/03/2024 | NO Agreement | 15/03/2024 | 02/04/2024 | 2024-25 |
| 7 | 17/02/2024 | 02/04/2024 | 02/04/2024 | 01/04/2024 | 2023-24 |
| 8 | 17/02/2024 | 02/04/2024 | 02/04/2024 | 05/04/2024 | 2024-25 |
| 9 | 17/02/2024 | 17/04/2024 | 02/04/2024 | 01/04/2024 | 2023-24 |
| 10 | 17/02/2024 | 17/04/2024 | 02/04/2024 | 05/04/2024 | 2024-25 |
| 11 | 18/03/2024 | NO Agreement | 02/04/2024 | 01/04/2024 | 2023-24 |
| 12 | 18/03/2024 | NO Agreement | 02/04/2024 | 05/04/2024 | 2024-25 |
To be able to claim the deduction of expenses or bills of micro and small enterprises on accrual or booking basis, the payments are due, considering the due date as MSMED Act i.e. 45 days or 15 days, on or before the end of financial year must be done within the same financial year.
For payments that are due, considering the due date as MSMED Act i.e. 45 days or 15 days, after the end of financial year, i.e. in the next financial year, the payments should be within the due dates as per the MSMED Act to claim the deduction on accrual or booking basis
