Explained: How Does Section 43B(h) IT Act Benefit MSMEs and Large Corporations

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Section 43B(h) of the Income-tax Act stands as a cornerstone in fortifying the MSME sector, nurturing timely payments, enhancing cash flow, reducing conflicts, and empowering MSMEs in their engagements with larger entities. Moreover, for large corporations, Section 43B(h) offers substantial benefits, encompassing tax optimization, heightened compliance, refined financial management, fortified supplier relations, risk alleviation, and heightened operational efficacy.

New Delhi (ABC Live): The Finance Act of 2023 introduced a significant amendment, Section 43B(h), which outlines that any outstanding dues owed to Micro and Small enterprises for goods supplied or services rendered can be deducted in the same fiscal year if paid within the deadline specified by the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006.

This legislative change targets the issue of working capital scarcity within the MSME sector and aims to encourage timely payments to micro and small businesses. Effective from April 1, 2024, this amendment covers the assessment year 2024–2025 onwards.

How MSMEs will benefit from the newly amended Section 43B(h) of the Income-tax Act?

Section 43B (h) of the Income-tax Act benefits Micro, Small, and Medium Enterprises (MSMEs).Here's how:

Timely Payments: The provision mandates that any outstanding dues owed to MSMEs for goods supplied or services rendered must be paid within a specified time frame. This ensures that MSMEs receive timely payments, which is crucial for their cash flow and operational stability.

Smooth Cash Flow: By incentivizing larger companies to settle dues within the stipulated time frame, Section 43B(h) contributes to a smoother cash flow for MSMEs. This predictability enables them to manage their finances more effectively and plan for growth.

Reduced Disputes: Prompt payments help minimize potential disputes and legal conflicts between MSMEs and larger enterprises. This saves valuable time and resources for both parties, allowing them to focus on their core business activities.

Bargaining Power: MSMEs gain increased bargaining power when negotiating payment terms with larger companies. With the backing of Section 43B(h), they can confidently push for timely payments aligned with the specified deadlines.

Financial Stability: Ensuring timely payments through Section 43B(h) contributes to the overall financial stability of MSMEs. This stability is vital for their sustainability and growth in the competitive business landscape.

Why Big business outfits benefit from Section 43B(h) of the Income-tax Act?

Tax Planning: By adhering to the specified timelines for payment to MSMEs, larger companies can claim deductions for these payments in the same fiscal year. This results in reduced taxable income and lowers the overall tax liability for the company.

Compliance: Section 43B(h) promotes transparent financial practices and regulatory compliance. By following the mandated payment deadlines, larger businesses demonstrate adherence to legal requirements, which can enhance their reputation and credibility.

Financial Management: Timely payments to MSMEs ensure smooth operations within the supply chain. By avoiding delays and associated penalties, big business outfits can better manage their cash flow and financial resources.

Supplier Relationships: Meeting payment deadlines as per Section 43B(h) fosters positive relationships with MSME suppliers. This can lead to improved supplier loyalty, better terms, and a more reliable supply chain, ultimately benefiting the larger company's operations.

Risk Mitigation: Compliance with Section 43B(h) reduces the risk of disputes and legal issues related to delayed payments. By avoiding potential litigation and associated costs, big business outfits can mitigate legal risks and focus on their core activities.

Enhanced Efficiency: Adhering to the prescribed payment timelines can streamline the procurement process and increase operational efficiency. This ensures that goods and services are delivered on time, contributing to overall productivity and performance.

Section 43B(h) of the Income-tax Act stands as a cornerstone in fortifying the MSME sector, nurturing timely payments, enhancing cash flow, reducing conflicts, and empowering MSMEs in their engagements with larger entities. Moreover, for large corporations, Section 43B(h) offers substantial benefits, encompassing tax optimization, heightened compliance, refined financial management, fortified supplier relations, risk alleviation, and heightened operational efficacy.

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