Important Update for Section 43B(h) of the Income Tax Act, 1961

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With effect from *01st April 2024*, in order for an assessee to be eligible to claim deduction on the sum payable to an micro and small enterprise, the deduction shall be allowed under the Income Tax Law to the assessee *only if payment* to a micro and small enterprise upon purchase of goods / services has been made *within a period of 45 days*.
*Who are Micro, Small and Medium Enterprises?*
1. Micro enterprise
– Investment less then Rs. 1 crore
– ⁠Turnover less than Rs. 5 crore
2. Small Enterprise
– Investment less than Rs. 10 crore
– ⁠Turnover less than Rs. 5 crore
3. Medium Enterprise
– Investment less than Rs. 20 crore

– ⁠Turnover less than Rs. 100 crore


*What if payment is not made within 45 days?*
1. The assessee shall be liable to pay compensatory interest to the seller after expiry of 45 days at the rate 3 times of the bank rate notified by RBI.
2. Such compensatory interest shall be disallowed to the assessee under the income tax law.
3. The sum payable by the assessee to the micro and small enterprise supplier shall be disallowed to the assessee.
*Who all are covered as per the MSME Act?*
Only Micro and Small enterprises are covered under this Section 43B(h). Therefore, sum payable to Medium enterprise is eligible for deduction on accrual basis as well.
By *Adv (CA) Hirak Shah*
(M): 9687304857

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