In the Union Budget 2023, a new provision has been proposed which seems to promote the payments to the Micro and Small enterprises. In the proposed Finance Bill 2023, a new clause (h) has been added into the section 43B which says that 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 MSME Act 2008 shall only be allowed on the basis of the actual payment. However, it is also proposed that the proviso to section 43B of the Act shall not apply to such payments.
First, let us understand the terminology which is used in the Finance Bill 2023. For the purpose of inclusion of clause (h) of section 43B, the term “Micro or small enterprise” has been used. The proposed clause do not include the word “Medium Enterprises”. Now, it is advisable to understand the terms based on their turnover and investment criteria.
| Particulars | Description |
| Micro Enterprises | Investment in Plant and Machinery or Equipment does not exceed Rs. 1 Crore and Turnover does not exceed Rs. 5 Crores |
| Small Enterprises | Investment in Plant and Machinery or Equipment does not exceed Rs. 10 Crore and Turnover does not exceed Rs. 50 Crores |
| Medium Enterprises | Investment in Plant and Machinery or Equipment does not exceed Rs. 50 Crore and Turnover does not exceed Rs. 250 Crores |
In the proposed clause, the term “Medium Enterprises” has not been included. Hence, the emphasis has been made on the payments to the Micro and Small enterprises. The Assessee shall have to take the MSME certificate from their vendors and differentiate them on the basis of the Micro or Small or Medium enterprises.
Also, the emphasis has been made on the section 15 of the MSME Act which says that the time limit for making the payment as per the written agreement shall not be more than 45 days. In absence of the written agreement, the section mandates the payment to be made within 15 days. In the proposed clause the deduction shall be available only if the payment is made within the time stipulated in the section 15 of the MSME act. If the payment is made after the time limit stipulated in the section 15 of the MSME Act, then the payment shall be allowed for deduction only on payment basis. In the proposed clause, the proviso of section 43B has been specifically excluded from the proposed clause. Means, that if the payment is not made within the current financial year in which the invoice has been received then the payment shall be allowed only if the payment has been made within the time ambit of section 15 of the MSME act and if not made within the section 15 timeline then in the said financial year in which the payment has been made. There has been complete de-linking of the concept of allowing the deduction if the payment is made before the due date of the furnishing the return.
Due to this clause, one expense that shall be permanently parked into the clause (h) of section 43B shall be the Audit fee payable by the Assessee to the Chartered Accountant firms. As the provision for Audit fee shall be raised on the 31st March of the said year but mostly the fees get received by the Chartered Accountants firms after the month of September of the following year. Hence, the Audit fee shall be permanently marked in the clause (h) of section 43B until and unless the Audit gets completed by 15th May of the following year and the Assessee releases the fee to the Chartered Accountants firms by 15th May of the following year.
Now, for the compliance of this clause, the taxpayers and the Professionals shall have to make a list of the Vendors which are Micro or Small enterprises meeting the definition criteria based on the Investment and Turnover as well as tracking the payment to the each and every micro and small enterprises vendors for availing this deduction.
Let us understand the concept with some examples :-
1. M/s. X is a Micro Enterprise. M/s. ABC Pvt Ltd has purchased the Goods from M/s. X on 15th Feb. Now the payment shall be made within 45 days as per the agreed agreement between the parties. Now the payment shall be made as per the agreement and the due date of payment shall be on 1st April. M/s. ABC Pvt Ltd has made the payment on 1st April i.e. within the due time. Now, the issue is whether the deduction of clause (h) shall be available to M/s. ABC Pvt Ltd or not. Now as per the clause (h) of Section 43B, the payment has been made on 1st April i.e. after the financial year but within the due time of the section 15 of the MSME Act. Thus, the deduction shall be made available to M/s. ABC Pvt Ltd in the Financial year in which the Goods has been purchased by M/s. ABC Pvt Ltd.
2. M/s. ABC Pvt Ltd is a Medium enterprises meeting all the criteria of the definition criteria of the MSME Act. Now, M/s. XYZ Pvt Ltd has purchased the goods from M/s. ABC Pvt Ltd on 1st January. And the payment has been made on the 1st May. Now, in this case, there shall be no addition as per clause (h) of section 43B as M/s. ABC Pvt Ltd is a Medium Enterprises.
3. M/s. X is a Micro Enterprise. M/s. ABC Pvt Ltd has purchased the Goods from M/s. X on 15th March. Now the payment shall be made within 45 days as per the agreed agreement between the parties. Now the payment shall be made as per the agreement and the due date of the payment shall be 29th April. Now, in the present scenario, if M/s. ABC Pvt Ltd makes the payment by 29th April then the deduction under clause (h) of section 43B shall be available, otherwise if the payment is made after 29th April then the deduction shall be available only on the basis of the actual payment basis.
