Important Income Tax Update– Promoting timely payments to Micro and Small Enterprises
Promoting timely payments to Micro and Small Enterprises
In order to promote timely payments to micro and small enterprises, there is a change in Income Tax Act, 1961.
It has been provided 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.
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.
Thus, the amendment in the Act will allow the payment for any purchase of goods or services as deduction only on payment basis. It can be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.
This amendment will take effect from 1st April, 2023 and will accordingly apply to the FY 2023-24 (AY 2024-25) and subsequent assessment years.
Hence, now all the micro & small creditors who are manufacturer & service provider (either for goods or services) registered under MSME Act i.e. having Udyam Aadhaar as on 31.03.2024 appearing in the books of account need to be settled within 45/15 days for claiming deduction of expenses in FY 23-24.
Else, the same shall be allowed as deduction in the year of payment i.e. FY 24-25 or subsequent year.
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