Income Tax Act amendment on cards on tax treatment of MSME dues
A change introduced last year in the Income Tax Act to help small businesses receive timely payments might have had the unexpected effect of putting off buyers of their goods and services altogether. According to two people aware of discussions in the government, the Centre may amend the Act again in the full budget for FY25 in July.
What is unclear, though, is the exact change that could be made. One of the two persons cited above said, “It is highly likely that clause H of section 43B may be dropped." The second person said it was too early to speak about the specific amendments that may be brought out. Both people spoke on condition of anonymity.
In a bid to address liquidity issues of MSMEs (micro, small and medium enterprises), Clause H was added in section 43B of Income Tax Act. Introduced in the Finance Act 2023, the clause says payments to small businesses that are delayed beyond a specified period can be claimed as an expenditure (deduction from taxable income) only in the financial year in which the payments are made, not in the year when the liability to pay arose.
