FY25 Budget Session May Revise Clause H of Section 43B

In the Income Tax Act a modification that has the objective of stringent the small businesses via assuring timely payments may have mistakenly prevented the buyers from engaging with them. The learned sources with the government discussions indicated a potential amendment in the act at the time of the coming FY25 full budget session in July. 

The suggested adjustment remains surrounded by ambiguity. One recommends that Clause H of Section 43B can be eradicated. Additional sources caution against premature assumptions about the preciseness of the forthcoming revisions, both asking for obscurity.

Under the Finance Act of 2023, the introduction of Clause H in Section 43B of the Income Tax Act, was made to ease the liquidity challenges that the MSMEs suffered. As per the clause the late payments to the small business could just be availed as the expenditure in the fiscal year of the actual patent and not when the obligation emerges. 

Even after its noble purpose, the concerns have come out among the small businesses for the unwilling repercussions. A worry is there that the bigger procurers may shy away from dealing with the small firms to evade this provision. Adjustments are expected to address such worry in the Finance Bill slated for presentation during the FY25 full-year budget.

Tax experts stated on the lessening of the same provision claiming that the Income Tax Act must majorly serve financial aims instead of widening social plans.

It added the possible ramifications for buyers of MSME goods and services. Late payments directed to a rise in the tax obligations for the businesses in the financial year including possible profit slumps upon eventual payment. Negative incomes can extend the offsetting procedure against future profits, causing further financial stress.

As per the Micro, Small, and Medium Enterprises Development (MSMED) Act, the definition of timely payments stands at 15 days, extendable to 45 days under contractual agreements. In distinct industries, the cycles of payments sometimes surpass such stipulated timelines ranging from 3 to 6 months.

Finance Minister Nirmala Sitharaman regards the concerns that the small businesses raised signifying a complete review functioned via the finance ministry to assure compliance with the cycle of payment via undertakings of the central public sector. Challenges came across in monitoring dues from state PSUs along with the private sector, provoking solicitation of recommendations.

Read Also: MSME 45 Days Payment Rule from 1st April 2024, Confirmed by FM

2023 Income Tax modification has the objective to incentivize timely payments, quoting instances where businesses manipulate fiscal advantages despite ignoring payment due dates, FM Sitharaman highlights. While the minister abstains from revealing plans of the government for the full budget, sources establish the intent to address unintended outcomes in the upcoming Finance Bill.

For late payments like taxes and loan interest, the existing provision provides ease, permitting deductions on the payment before tax return filing. But the same leniency is missing for late payments to small businesses, heightening their financial difficulties.