Very important amendment in Income Tax relating to MSME

You buy goods or services from an MSME:

You have to pay the amount _within 45 days from the date of acceptance of goods of services_ (or within such shorter time as agreed between the parties)

But If you fail to pay the amount due to an MSME within 45 days, then what is the consequence?

1.  You have to pay interest @ 20.25% from the 45^th day till the date of payment.

(This interest is not deductible as an expenses under Income Tax Act)

2. But most importantly, there is an amendment in the Income Tax Act from FY 2023-24 which says “YOU CANNOT CLAIM THAT PURCHASE OF GOODS OR SERVICES AS AN EXPENSE”. But you can claim the expense in the year in which you have paid the MSME.

 For example, if you buy Rs. 10 lakhs worth of goods from an MSME which is overdue for more than 45 days and is outstanding as on 31^st March,  then you will have to pay about Rs. 3.40 lakhs plus interest additionally, as Income Tax.

You have to identify, out of your creditors,  who all are MSMEs and ensure that their dues are settled in time.

So please take care that you pay all your MSME creditors within 45 days and clear the all dues to MSME outstanding for more than 45 days before March 31^st.

To MSME suppliers : Do not forget to mention your MSME registration number in your quotes, contracts, invoice and other communications with your customers.