Key Points
Many big and small businesses are playing a cat-and-mouse game, some are taking an aggressive stance, while most are waiting it out, knocking on the governments doors, as a well-meaning, yet unsettling, law aims to move the wheels of commerce faster...
Under the law --- section 43B(h) of the Income Tax Act --- whose impact would be felt for the first time this year, a business entity failing to pay its vendors registered as `micro or small (MSE) within 45 of delivery, would not get the deduction of its purchase in the year of the purchase but can claim the deduction only in the year of actual payment..
Thus, deduction disallowance for unpaid outstanding would increase the taxable income and tax of companies for FY24...
Indeed, a large southern association has advised micro and small enterprises (MSEs) that since its not possible to pay within 45 days, the suppliers should either cancel their registration or immediately reclassify themselves to trading from manufacturing entities --- as wholesale and retail traders, say many tax practitioners, are not eligible for this benefit..
The transition to a strict 45 days payment schedule would take time and the impact would be felt the most in the financial year ending 31st March 2024," said Gautam Nayak, partner at CNK & Associates, a tax and audit firm...
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