Point News Network (PNN)
A new rule requires corporations to pay outstanding invoices to small businesses within 45 days of the start of the fiscal year 2024–2025. Increased tax liabilities for the previous fiscal year, 2023–2024, will follow non-compliance. The reason for this is that deductions are only allowed for expenses paid during the same fiscal year. Businesses must abide by this rule to avoid incurring more tax obligations.
Online Udyam Registration Process
The Indian government launched the Udyam Registration procedure to streamline MSME registration. It takes the place of the Udyog Aadhaar Memorandum (UAM) and EM-I/II. Through this programme, MSMEs can more easily obtain credits, incentives, and exemptions.
Criteria for MSME Classification
Two primary criteria are used to classify firms as micro, small, or medium-sized enterprises: the amount of money invested in machinery or equipment and the turnover of the company. The criteria, which have been amended since July 1, 2020, are listed below:
These standards form the foundation for MSMEs’ classification and enable them to take advantage of several government-provided benefits, such as priority sector loans, subsidies, incentives, and more.
Exploring the Newest Tax Compliance Rules: Demystifying Section 43B
Businesses in India usually account for expenses on an accrual basis, even if they haven’t received money for them. However, payment to MSME Registered Enterprises must be made within 15 days, or up to 45 days if agreed upon, by Section 15 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 and the recently passed Section 43B(h) of the Income-tax Act.
India’s new tax laws will take effect on April 1, 2024, and require all firms, whether corporations, partnerships, sole proprietorships, or limited liability companies (LLPs), to pay their MSME-registered suppliers on time. Payments must be made within 15 days, or up to 45 days if all parties agree.
A corporation can only deduct an expense from its income in the financial year 2024–25, not 2023–24, if it pays a small MSME Registered Enterprise after April 1, 2024, having delayed payment for more than 45 days by March 31, 2024. As a result, businesses might have to modify their financial plans and negotiating tactics.
Section 15 of the MSMED Act, 2006 and Section 43B(h) of the Income-tax Act, 1961 stipulate that companies must make payments in the following ways for products or services that they acquire from MSME-registered entities:
Businesses would not be able to deduct these payments as costs in the year of occurrence if this regulation wasn’t followed; instead, the deductions could only be taken in the year of payment. As a result, rather than being claimed on an accrual basis, these expenses must be paid for, which could result in higher taxable income and business taxes. Companies are worried about this possibility since it could lead to increased tax obligations in 2024–2025.
Implications of Failure to Pay MSMEs on Time in Line with Section 43B(h)
The payer will be responsible for the interest on the outstanding balance if payment to an MSME-registered unit is not made on time. Depending on whether the agreement specifies a date other than the designated day or the Reserve Bank of India (RBI) notifies the bank rate, the interest rate will be set based on that date.
Additionally, it’s important to highlight that deduction of this interest will not be permitted as an expense under any section of the Income-Tax Act (ITA), 1961.
Impact on Enterprises Registered Under Udyam
A number of advantages are available to SMEs with the Udyam Registration certificate, such as access to several government programmes, incentives, and subsidies. The benefits for MSMEs are further enhanced by the adoption of Section 43B(h). MSME units can profit from the following:
Guaranteeing Adherence and Minimizing Risks
To comply with Section 43B(h), Udyam-registered units must give priority to promptly settling supplier debt. This calls for keeping thorough records of these payments and making sure they are made by the deadlines.
Leveraging Advantages Through Adherence
For Udyam registered units, Section 43B(h) compliance offers a chance to improve financial management even though it may seem difficult to follow. SMEs establish confidence with lenders, investors, and government agencies by demonstrating transparency and accountability through careful record-keeping and on-time payments.
Addressing Challenges and Seeking Assistance
Udyam registered units may encounter difficulties complying with Section 43B(h) despite their best efforts. These challenges could be restricted funds or difficult tax laws to understand. Under such circumstances, SMEs ought to aggressively seek assistance from professional associations, industry groups, and advisory-service-providing governmental bodies. Working together with colleagues and sharing best practices can also provide helpful direction for addressing common compliance issues.
Fostering Trust and Establishing Reputation
Respecting Section 43B(h) not only satisfies legal obligations but also makes a substantial positive impact on Udyam registered entities’ reputation and ability to build confidence. Timely fulfilment of legal and supplier duties shows honesty and reliability, which builds confidence with clients, partners, and other stakeholders.
Assessment and Enhancement
For Udyam registered units, achieving and maintaining compliance with Section 43B(h) requires consistent commitment. It requires ongoing evaluation of financial procedures, close observation of regulatory changes, and proactive adjustments to align with changing tax laws. SMEs should implement strong internal controls and carry out regular audits to quickly identify and address any possible instances of non-compliance.
Closing Remarks
In summary, compliance with Income Tax Act Section 43B(h) is essential for Udyam registered firms. Efficient resolutions with small enterprises are necessary to avoid tax fines and optimise the benefits of Udyam Registration. Using digital solutions, consulting with experts, and encouraging a continuous improvement culture are essential strategies for handling tax compliance and creating long-lasting advancement. Regular payments on time for all aspects of the firm will benefit individual entrepreneurs as well as the economy as a whole.
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