As the Financial Year 2024–25 draws to a close, it’s essential to ensure compliance with Section 43B(h) of the Income Tax Act, 1961, introduced by the Finance Act, 2023. Non-compliance could lead to disallowance of tax deductions and higher tax liabilities!

Key Compliance Requirements:

Timely Payments:
15 days if no agreement exists
45 days if an agreement specifies payment terms

Tax Deduction Impact:
Payments not cleared within the timeline will be disallowed as an expense
The deduction will only be available in the fiscal year when the payment is actually made.

Key Takeaways:
Applies to Micro & Small Enterprises (MSEs) under the MSMED Act, 2006
Excludes Medium Enterprises, Retailers & Wholesalers registered as MSMEs
Delayed payments attract a penalty of compound interest (3x the RBI bank rate)

Effective from April 1, 2024 (Assessment Year 2024–25 onwards)

Manan Doshi Vaishnavi Mistry MPDoshiAssociates Prakash Jangid