“Recent Income Tax Amendments and MSMEs: Implications”

Introduction:

The Micro, Small, and Medium Enterprise (MSME) sector significantly contribute to India’s economic landscape. This article explores recent amendments to the Income Tax Act (ITA) related to MSMEs, focusing on key provisions and their implications. As per the Micro, Small and Medium Enterprise Act, 2006, Micro, Small, and Medium enterprises are classified based on their investment in Plant and Machinery and turnover.

Amendments to the Income Tax Act:

The Income Tax Act, 1961, introduced a new clause under section 43B concerning deductions applicable only on actual payment. Clause (h), inserted after clause (g) by the Finance Act, 2023, specifies 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 Act, 2006 is subject to deductions.

Key Provisions and Implications:

Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 outlines the liability of the buyer to make payment within the agreed time frame. If payment to a micro or small enterprise exceeds the stipulated time limit, deductions are applicable under the Income Tax Act. Deductions are allowed only when payments to Micro and Small enterprises are made within the prescribed time, not exceeding 45 days.

Illustration:

For instance, if a payment is due within 45 days but is made after the due date but before the year-end, deductions are applicable for that financial year. However, if the payment is made after 45 days, deductions will be applicable in the subsequent year.

Udhyam Registration and Implications:

It is advisable for MSMEs to mention their Udhyam Registration number and category (micro or small enterprise) in their sale bills to avail of MSME status. During scrutiny, the assessing officer may add the outstanding amount to the total income if payment to a micro or small enterprise exceeds the prescribed time limit.

Benefits of MSME Registration:

Registration under MSME offers various benefits, including security for late payments, relief for bank loans, subsidies for industries, benefits for electricity, and relief for certificate fees.

Conclusion:

While the amendments aim to streamline payments to Micro and Small enterprises, they have profound implications for businesses. Adherence to timelines is essential, and MSME registration offers various benefits. The industry’s request to reconsider or delay the implementation reflects the concerns and complexities faced by small businesses nationwide.