Key Points
The new law under Section 43B(h) of the Income Tax Act, which mandates payment to micro and small enterprises (MSEs) within 45 days of delivery to claim deductions, is causing concern and leading to various strategies by businesses and vendors to mitigate its impact..
Some companies are attempting to avoid the law's impact by sending letters to vendors without expecting responses, while others are issuing post-dated cheques or raising objections within 15 days of delivery to delay payment obligations.Getty.
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 days 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'..
Indeed, a large southern association has advised micro and small enterprises (MSEs) that since it's 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..
In partially softening the blow to big buyers from the change in the tax law, some vendors are 'voluntarily' giving up their claims on interest applicable for delayed payment..
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