Section 43B(h) of Income Tax Act: How to Report in Form 3CD

Section 43B(h) of Income Tax Act

Finance Act 2023 inserted a new provision u/s 43B i.e., clause (h) which states that any sum payable by the assessee to micro or small enterprise beyond the limit specified in section 15 of Micro, Small and Medium Enterprises development Act 2006(27 of 2006)” shall be allowed as a deduction only in the previous year in which the sum has been actually paid.

This amendment is applicable w.e.f 1st April 2023.

Turnover limit

For Micro Enterprises

Turnover limit is upto Rs. 5 crore and investment in plant and machinery not exceeding Rs.1 crore.

For Micro Small Enterprises

Turnover limit is upto Rs. 50 crore and investment in plant and machinery not exceeding Rs.10 crore.

Note : MSME registered members should mentioned their registration number in invoices/bills/letter heads etc.

Time limit For payment

If there is no agreement

Payment must be made within 15 days.

If there is an agreement

Payment must be made with in due date or maximum of 45 days.

Note : Section 43B(h) of Income Tax Act is not applicable on traders.

What happens if payment not made within time limit?

If payment not made in time limit then dis-allowance attract and while making payment deductions will be allowed.

Reporting in Form 3CD

Disclosure to be made in clause 22 instead of clause 26.

Clause 22 is now contains both principal dis-allowance u/s 43B(h) and interest dis-allowance under MSMED Act.

Points To Remember

• Section 43B(h) is not applicable on taxpayers opt for presumptive taxation.

• Its applicable only for those business who prepares books of accounts and file ITR 3 or have tax audit.

• Its not mandatory that creditor should be registered in MSME.

• Provision is not applicable on opening balance on 01-04-2023.

• It is not applicable on depreciation and purchase of capital asset.

• Interest paid by buyer for delayed payment should not be deductible under the IT Act.

FAQs