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Section 43B (H) of The Income Tax Act

Section 43B of the Income Tax Act 1961 allows specified expenses to be deducted only in the year they are paid, with the recent addition of Section 43B(h) enabling deductions for payments to Micro and Small Enterprises if made within the stipulated deadlines. The MSMED Act requires payments to be made within 45 days or 15 days depending on the existence of a written agreement. Non-compliance with Section 43B(h) incurs a penalty of compound interest at three times the RBI bank rate, and businesses are advised to maintain accurate records and adhere to timelines for compliance.

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66 views6 pages

Section 43B (H) of The Income Tax Act

Section 43B of the Income Tax Act 1961 allows specified expenses to be deducted only in the year they are paid, with the recent addition of Section 43B(h) enabling deductions for payments to Micro and Small Enterprises if made within the stipulated deadlines. The MSMED Act requires payments to be made within 45 days or 15 days depending on the existence of a written agreement. Non-compliance with Section 43B(h) incurs a penalty of compound interest at three times the RBI bank rate, and businesses are advised to maintain accurate records and adhere to timelines for compliance.

Uploaded by

kumaresh mahadevan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SECTION 43B(H) OF

THE INCOME TAX ACT


1961
SECTION 43B
Section 43B states that the specified expenses can be claimed as deduction from the
business income only in the year of actual payment irrespective of the year of
accrual of its liability.
Deductions specified under Section 43B
The following deductions are specified in this section
• Any tax, duty, cess or fee paid under any law in force is allowed as a deduction
when it is paid- this includes GST, customs duty or any other taxes or cess paid.
Interest paid on these taxes are also eligible for deduction.
• Contribution to any recognized employee’s benefit fund: contribution by the
employer to any employee’s benefit fund namely PF fund, superannuation fund,
gratuity fund before the due date for depositing those funds or before the due date
of filing income tax returns
• Bonus or commission payable to employees- this amount should be the actual
bonus/ commission paid to employees and not dividends payable to them as
shareholders.
• Interest on borrowings from Public Financial Institutions or State Financial
Corporation in accordance with the conditions governing such loan
• Interest on loans and advances from Scheduled Bank in accordance with the
conditions governing such loan
• Leave encashment provided by an employer to his employees
SECTION 43B(H)
The Finance Act 2023 inserted Section 43B(h), which stipulates
that any sum owed to Micro and Small enterprises for goods
supplied or services given may be deducted in the same year if
it is paid within the deadline stipulated by the Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006.
Time limit:
Business enterprises are required to pay MSMEs within 45 days,
as per section 15 of the MSMED Act, 2006, depending on the
presence of a written agreement. In case there is no written
agreement, payment should be made within 15 days. No
agreement shall be more than 45 days
Applicability:
Clause (h) of Section 43B is applicable from April 1, 2024. This
amendment is made applicable from assessment year (AY) 2024-
25, that is, Financial Year (FY) 2023-24.
PENALTY FOR NOT COMPLIANCE
WITH SECTION 43B(H)
Compound interest at the rate of 3 times the bank rate notified
by the RBI is applicable.
Date from which interest is payable: The date as per the
agreement or the day following immediately after the expiry of the
period of fifteen days from the day of acceptance or the day of
deemed acceptance of any goods or any services by a buyer
from a supplier (appointed day), as the case may be.
Deduction of this interest is not allowed as an expense, as
per the Income-tax Act (ITA), 1961.
STEPS TO ENSURE COMPLIANCE
WITH SECTION 43B(H)
 Create Awareness
 Maintain Accurate records
 Adhere to prescribed timelines
 Implement robust monitoring systems
 Promptly address discrepancies
! USERS SUBMIT THE INVOICES AT
THE EARLIEST!

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