Micro, small and medium enterprises (MSMEs) plays a crucial role in economic development and growth in country like India. They contribute significantly to employment generation, industrial production, and overall economic growth. These enterprises are known as relatively smaller in size and faced most of the challenges related to financial access and growth opportunities.
Timely financial transactions are important for sustenance and growth of MSMEs. Delays in payments from clients or customers can affect the cash flows, lack in meeting the operational expenses and fulfilling the statutory payments like salaries and taxes. Looking at this various laws had been implemented for promptly make payment to MSMEs, including under Micro Small and Medium Enterprise Development Act, 2006.
Amendments in Section 43B (H) of Income Tax Act.
Recently, government has made amendments to Section 43B by including the Clause (H) in the Income Tax Act 1961, aiming to provide slight relief to MSMEs who are facing delay in payments. As the Section 43B deals with certain deductions allowable only on actual payments.
The new amendment Section 43B(H) helps small businesses by addressing late payments and the impact on their taxes. It helps them by giving special tax benefits. This makes it easier for them to manage their finances, grow, and stay strong.
Another crucial thing this amendment provides is the new payment terms for the buyers to MSMEs. This shows that the buyer has to clear all his payments to the MSMEs within 45 days time period from the date of Invoice created. This ensure that the MSMEs receives timely payments for their goods and services.
Impacts on Businesses:
1. Disallowed Deductions: If the payments to the MSMEs or the business vendors are not made within the stipulated time frame i.e., 45 days. Then the expenses associated with such payments will not be allowed to get deducted for the current calculating income tax.
2. Penalties and Interest: Businesses that doesn’t follow Clause 43B (H) can be penalized by the authority and may be charged interest on any payments from the buyer, which states their financial loss.
3. Cash Flow Management: Timely payments become crucial for businesses to manage their cash flow effectively. Non-follow with Clause 43B(H) may lead to unexpected tax liabilities, affecting the liquidity of the business.
4. Increased Tax Liability: The disallowed deduction amount will be shown as additional income in the books of accounts for the buyer and this results to higher taxable amount to pay. Leads to impact on bottom line of the financial transactions
Best Practices for Businesses
1. Robust Payment Processes: Buyers must ensure that due payments should be done within the 45 days time period. Delays could results in the loss.
2. Documentation: Maintaining the accurate records of the payments including invoices, receipts, proof of taxes deduction can helps to get easy access during audits and checks.
3. Monitor Cash Flows: Regularly monitoring cash flows helps to anticipate and deal with payments towards the vendors and other dealers.
4. Engage with Tax Experts: Seek guidance from tax experts or consultants to ensure a thorough understanding of Clause 43B(H) and its implications for the business.
Practical Tips for Businesses.
When it comes to handling payments within the stipulated 45-day period, businesses can follow some practical tips to make the process smoother:
Maintain open communication with the MSMEs suppliers regarding your agreements and payments. Clear communication helps builds trust and makes sure everyone is on the same page.
Considering using technology is the best practice like, payment tracking systems and software helps to monitor the payment deadlines. These tools can helps to revive any delays in the process.
Antraweb’s Solution Break-through.
With this recognition to the problem Antraweb Technologies Pvt. Ltd. has developed the MSME module, a specialized product to look for the needs of businesses regarding Clause 43B(H). This module focuses on providing a list of due payments to the business and with a unique filter option that specifically highlights outstanding payments to MSME suppliers.
By utilizing this module it helps to inform the buyers about the due payments and promptly clear all the bills before the stipulated time frame and stay under the requirements of Income Tax Act 1961, Clause 43B(H).
In Conclusion, the recent amendment in Section 43B of the Income Tax Act, 1961, by introducing Clause (H), makes an important step towards supporting Micro, Small, and Medium Enterprises (MSMEs). This is done by mandating timely payments to MSMEs within 45 days from the date of invoice creation, the amendment aims to loosen the financial burden faced by MSMEs.
And also generates a conductive environment for their sustainable growth and contribution to the economy. Following this Clause 43B(H) not only benefits MSMEs but also contributes to the overall financial health and stability of the businesses.
