With the objective of promoting timely payments to Micro and Small Enterprises, Hon. Finance Minister Nirmala Sitharaman in her Budget 2023-24 speech has proposed to insert a new clause (h) in section 43B 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 deduction only on actual payment. Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Further, the provision of section 43B allows deduction on accrual basis, if the amount is paid by the due date of furnishing the return of income.
Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days.
Thus, the proposed amendment to section 43B will allow the payment as deduction only on payment basis. It can be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.
The amendment will take effect from 1st April, 2024 and will accordingly apply to the assessment year 2024-25 and subsequent assessment years.
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