Delay in Making Payment to Micro and Small Enterprises Means Deferred Deduction

 
 
Section 43B-any amount remains unpaid on year end to creditors, being micro/small entity, beyond 45 days or less, as agreed or 15 days if no agmt, shall be added to taxable Income resulting in huge additional tax liability. Keeping such creditors unpaid is risky.
 

If payment for purchases made from *Micro and Small units* remains outstanding on 31st March, there may be huge tax liability.  Therefore, plan from now on.
 

Companies not making payment to micro and small enterprises during the current fiscal will have to wait for a year for deductions under the Income Tax Act. The amendment in the law is coming into effect from Assessment Year 2024-25.
 

Section 15 of the Micro, Small and Medium Enterprises Development Act 2006 mandates payments to micro and small enterprises within 45 days in case of written agreement and 15 days in case of no-written agreements. There have been numerous instances, when payment was delayed.
 

In order to resolve this, while announcing Union Budget for Fiscal Year 2023-24, Finance Minister Nirmala Sitharaman said: “To support MSMEs in timely receipt of payments, I propose to allow deduction for expenditure incurred on payments made to them only when payment is actually made.”
 

An explanatory memorandum made it clear that this will be applicable for small and medium enterprises only. Micro enterprises mean a unit where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed Rs 5 crore rupees. For small enterprises, these figures will be ?10 crore and ?50 crore, respectively.