Income Tax provisions wrt MSME Act, 2006

Timeline for claiming deductions for payments to Micro and Small Enterprises (MSMEs) under Section 43B of the Income Tax Act, with the new amendment effective from FY 2023-24

Let’s Discuss with Examples

Scenario 1: Payment within MSMED Act timelines

• Day 1: You (buyer) receive goods or services from an MSME (supplier)
• Day 15: This is the deadline for you to raise any objections about the goods or services.
  • If no objections: The day of delivery (Day 1) is considered the “date of acceptance”.
• If objections raised: The date the objection is resolved becomes the “date of acceptance.”
• Day 16 (or Day of acceptance + 15): This is the due date for payment according to the MSMED Act.
• Before your Income Tax Return due date (as per section 139(1)): You can make the payment and claim the deduction in the same financial year (FY) as the date of acceptance.

Scenario 2: Payment beyond MSMED Act timelines

• Day 16 (or Day of acceptance + 15): You miss the MSMED Act payment deadline.
• Before your Income Tax Return due date (as per section 139(1)): You can still make the payment, but the deduction will be claimed in the FY you made the payment, not the FY of the date of accceptance.

Summary Points:

• The maximum agreed upon payment deadline between you and the supplier cannot exceed 45 days from the date of acceptance, provided there is come pre-agreement.
• This rule applies only to payments to Micro and Small Enterprises, not Medium Enterprises.
• For detailed definitions of Micro and Small Enterprises, you may refer to the MSMED Act, 2006.

By following these timelines, you can ensure to claim the correct deductions for your MSME payments and avoid any tax complications.