Traders and tax practitioners are urging the finance ministry to re-evaluate subsection ‘h’ of section 43B of the Income Tax Act due to concerns that it could lead to the disallowance of certain deductions from business income.
Section 43B of the Income Tax Act outlines specific expenses that can be claimed as deductions from business income in the year of actual payment.
The recent addition of subsection ‘h’ to 43B through the Finance Act 2023 allows for a deduction from business income based on the actual payment of any sum to micro or small enterprises (MSMEs) within a specified time frame. This provision, effective from April 1, 2024, aims to promote timely payments to MSMEs. However, it has sparked apprehension among businesses, potentially discouraging purchases from MSMEs and impacting working capital.
Read more at: Illustrative Scenarios & Implications of Section 43B(h) of the Income Tax Act, 1961 for MSMEs
Traders express concern that if deductions are disallowed due to delayed payments beyond the prescribed time limit, it could significantly increase tax liabilities, including interest and penalties. This has led to a division among businesses with varied credit periods, creating challenges for those unable to operate within the 45-day window.
The Confederation of West Bengal Trade Associations has voiced the adverse impact of subsection ‘h’, stating that it has made purchasing from MSMEs economically unviable for many buyers, leading to order cancellations and MSME registrations being affected.
Calling for immediate action, the confederation emphasized the urgent need for the removal of subsection ‘h’, particularly amidst the ongoing Lok Sabha Election period.
In addition, the All India Federation of Tax Practitioners highlighted the challenges faced by traders, who are hesitant to engage in purchases from micro and small enterprises due to fears of disallowed outstanding purchase amounts at year-end.
Narayan Jain, national president of the All India Federation of Tax Practitioners, stressed the necessity of reviewing the provision and suggested relaxing the criteria by allowing payments within the due date of filing income tax returns.
Read more at: Critical Issues on MSMEs Under Section 43B(h) of Income Tax Act