MSME 45 DAYS PAYMENT RULE APPLICABILITY

WHAT IS MSME: –

CLASSIFICATION	MICRO	SMALL	MEDIUM
Manufacturing Enterprises and Enterprises rendering Services	Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore	Investment in Plant and Machinery or Equipment: Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore	Investment in Plant and Machinery or Equipment: Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore

SEC 15 of MSMED Act 2006: –

Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days.

SEC 43B OF INCOME TAX 1961: –

Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Further, the proviso of this section allows deduction on accrual basis if the amount is paid by due date of furnishing of the return of income.

NEW CLAUSE OF 43B (h): –

Applicability: This amendment takes effect from 1st April, 2024 and will accordingly apply in relation to the assessment year 2024-25 and subsequent assessment years.

In order to promote timely payments to micro and small enterprises, payments made to such enterprises have been included within the ambit of section 43B of the Act vide FA 2023. A new clause (h) has been inserted in section 43B of the Act to provide 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 (MSMED) Act 2006 shall be allowed as deduction only on actual payment. However, it has also been provided that the proviso to section 43B of the Act shall not apply to such payments.

In order to promote timely payments to micro and small enterprises, payments made to such enterprises have been included within the ambit of section 43B of the Act vide FA 2023. A new clause (h) has been inserted in section 43B of the Act to provide 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 (MSMED) Act 2006 shall be allowed as deduction only on actual payment. However, it has also been provided that the proviso to section 43B of the Act shall not apply to such payments.

Thus, this amendment to section 43B of the Act allows the payment as deduction only on payment basis. It can be allowed on an accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.

For Example: –

A Ltd. Purchases goods (invoice value: Rs. 13,40,000) on credit from B Ltd. (a micro/small enterprise as per MSMED Act). Date of purchases is March 10, 2024. As per the written agreement with B, A Ltd. Has to make payment on or before April 25,2024. However, the payment is made as follows –

• Rs. 2,00,000 paid on March 28, 2024,
• Rs. 3,00,000 paid on April 4, 2024,
• Rs. 4,00,000 paid on April 10, 2024 and
• Rs. 4,40,000 paid on May 6,2024.

 Date of acceptance of goods is March 10, 2024. The due date for payment as per MSMED Act is April 25, 2024 (i. e., the agreed date of payment or 45 days, whichever is earlier). Deduction will be available to Z Ltd. As follows –

Payment in Rs. / date of payment	Due date as per MSMED Act	Is it late payment and section 43B is applicable	Basis of deduction	Previous year in which deductible
2,00,000/ March 28, 2024	April 25, 2024	No	Accrual basis	2023-24
3,00,000/ April 4, 2024	April 25, 2024	No	Accrual basis	2023-24
4,00,000/ April 10, 2024	April 25, 2024	No	Accrual basis	2023-24
4,40,000/ May 6, 2024	April 25, 2024	Yes	Payment basis	2024-25