200. MSME Payment within 15 or 45 days Compulsory | Sec. 43B(h) of Income Tax Act

Summary

The video script discusses Section 43B of the Income Tax Act, 1961, focusing on the challenges businesses face with delayed payments to micro and small enterprises. The presenter clarifies the section's implications, emphasizing the need for timely payments within specified limits to avoid disallowances and potential tax implications. The script also addresses the inclusion of GST components in payments and the importance of adhering to the due dates to prevent financial penalties. Aimed at business owners and students, the video provides a detailed guide to navigating Section 43B compliance.

Takeaways

• 📖 The video discusses Section 43B of the Indian Income Tax Act, 1961, which deals with the payment of expenses to micro and small enterprises (MSEs) and the implications of non-compliance.
• 🚫 Section 43B was introduced to protect MSEs from delayed payments and to ensure timely payments from businesses.
• ⏱️ Payments to MSEs must be made within a specified time limit, which is typically 45 days for goods and services, or as per any agreement not exceeding 45 days.
• 📈 Late payments can result in disallowance of expenses under Section 43B, which could increase a business's taxable income and lead to higher tax liability.
• 💡 The video clarifies that Section 43B does not apply to medium-sized enterprises, only to micro and small enterprises as defined by the MSME Act, 2006.
• 🔍 Businesses are advised to check their suppliers' registration status to determine if they are MSEs and thus subject to Section 43B compliance.
• 📝 The video emphasizes the importance of written agreements between businesses and suppliers regarding payment terms, especially the timeline, which must adhere to the法律规定.
• 📅 The 'appointed date' for goods receipt or service provision is crucial for determining the timeline for payments and potential disallowances.
• 💼 The video suggests that businesses should be aware of the difference between 'accepted' and 'deemed accepted' goods or services to avoid late payment penalties.
• 📊 The script explains the consequences of non-compliance with Section 43B, including the addition of late payments to taxable income and the imposition of interest at three times the RBI rate.
• 📋 Lastly, the presenter encourages viewers to like and share the video to help other business owners understand and comply with Section 43B of the Income Tax Act.

Q & A

What is Section 43B of the Income Tax Act, 1961?

Section 43B of the Income Tax Act, 1961, deals with the payment of certain expenses, particularly those related to micro and small enterprises (MSEs). It mandates that payments to MSEs must be made within a specified time limit, or the expense will be disallowed for tax purposes.

Why was Section 43B introduced?

Section 43B was introduced to protect the interests of MSEs, as there were delays or non-payments of MSME payments, impacting their financial health.

What are the time limits for making payments to MSEs as per Section 43B?

As per Section 43B, payments to MSEs must be made within a specified time limit, which is 45 days from the date of acceptance or deemed acceptance of goods or services. If there is no agreement, the limit is restricted to 15 days.

What happens if the payment to MSEs is not made within the specified time limit?

If the payment is not made within the specified time limit, the expense will be disallowed for tax purposes, and it will be added to the income, resulting in increased tax liability.

How does Section 43B affect the tax liability of a business?

If a business fails to make timely payments to MSEs, the unpaid amount is added to the business's income, increasing the tax liability. Additionally, interest may be levied on the delayed payment amount.

What is the definition of a micro or small enterprise as per the script?

A micro enterprise is defined as an enterprise with a turnover up to 5 crores and investment in plant and machinery up to 1 crore. A small enterprise has a turnover up to 50 crores and investment in plant and machinery up to 10 crores.

Are traders included in the definition of MSEs for the purpose of Section 43B?

No, traders are not included in the definition of MSEs for the purpose of Section 43B. The section applies only to suppliers who are manufacturers or service providers.

How can a business determine if a supplier is an MSE for the purpose of Section 43B?

A business can determine if a supplier is an MSE by checking the supplier's invoice for the Udyog Aadhaar Number or by requesting clarification from the supplier regarding their MSME status.

What is the impact of Section 43B on GST components in invoices?

The disallowance under Section 43B is restricted to the amount excluding GST. Only the amount of the supplier's invoice excluding GST is considered for the disallowance.

What is the 'appointed date' as per the script in relation to Section 43B?

The 'appointed date' refers to the date of acceptance or deemed acceptance of goods or services. It is the date from which the specified time limit for payment to MSEs begins.

What is the implication of delayed payment beyond the 'appointed date'?

If payment is delayed beyond the 'appointed date', the expense is disallowed for tax purposes, and the business must include the unpaid amount in its income, leading to increased tax liability and potential interest charges.