What is section 43B of the Income Tax Act?

Section 43B of the Income Tax Act is a provision that specifies certain deductions that can be claimed by businesses only a actual payment basis, irrespective of the accounting method followed by them. This means that such deductions are allowed only in the year in which the payment is made, and not in the year in which the liability is incurred.

Some of the deductions covered under section 43B are:

    - Any Tax, duty, cess or fee paid to the government

    - Any sum payable by the employer as contribution to provident fund or other welfare funds

    - Any Interest payable on any loan or borrowing from any public financial institution or bank

    - Any sum payable as bonus or commission to employees

    - Any sum payable as royalty, technical fees or any other fees for professional services

What is the new clause (h) of Section 43B ?

The Finance Act 2023 inserted a new clause (h) in section 43B, which states that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, shall be allowed only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.


This Means that if a business owes any amount to a micro or small enterprise of goods supplied or services rendered, and does not pay it within the stipulated time limit under the MSMED Act, 2006, then such amount will not be deductible as on expense in the year of accrual, but only in the year of payment.

This Amendment aims to address the issue of working capital scarcity in the MSME sector and encourage timely payments to micro and small enterprises.

What is the time limit under section 15 of the MSMED Act, 2006 ? 

Section 15 of the MSMED Act, 2006 mandates that any buyer who purchases any goods or avails any services from a micro or small enterprise registered under the MSMED Act, 2006, must make the payment within the following time limits:

-If there is a written agreement between the buyer and the supplier, then payment must be made within or before the date agreed upon in writing, but not later than 45 days from the date of acceptance or deemed acceptance of goods or services.

-If there is no written agreement between the buyer and the supplier then payment must be made before the appointed day, which means the day following immediately after the expiry of 15 days from the date of acceptance or deemed acceptance of goods or services.


If the buyer fails to make the payment within these time limits, he will be liable to pay interest to the supplier at three times of the bank    rate notified by RBI.


Who are micro and small enterprises under the MSMED Act, 2006?

The MSMED Act, 2006 defines micro and small enterprises based on their investment in plant and machinery (for manufacturing enterprises ) or equipment (for service enterprises). The following table shows the classification of enterprises under this Act: 

 
Applicability and Exclusions of Section 43B (h) Clauses 

- Effective from AY 2024-25, not applicable for outstanding amounts as of 31/03/2023.

- Applies only to Micro or Small Enterprises, excluding Medium Enterprises.

- Applicable only to payments for creditor outstanding as of 31-03-2024.

- Not applicable to assessee opting for presumptive taxation under section 44AD/44ADA/44AE.

- Buyer is not mandatory to be MSME.

To avail the benefits under this Act, an Enterprise must register itself under Udyam Registration Portal https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm and obtain an Udyam Registration Number (URN).

How to verify if a supplier is registered under Udyam Registration Portal ?

A buyer can verify if a supplier is registered under Udyam Registration Portal by visiting https://udyamregistration.gov.in/Udyam_Verify.aspx

and entering the URN of the supplier. The Portal will display the details of the supplier such as name, address, category, date of registration etc.

Alternatively, a buyer can also request a copy of MSME certificate from the supplier as proof of registration.

What is an example of Section 43B (h) ?

Let us take an example to understand how section 43B (h) works.


Suppose ABC Ltd. is a company that follows mercantile system of accounting and has a financial year ending on 31st March 2024. It purchases goods worth Rs. 10 Lakhs from XYZ Ltd., a micro enterprise registered under the MSMED Act, 2006, on 1st February 2024. As per the written agreement between them, ABC Ltd. has to make the payment within 30 days from the date of acceptance of goods.

However, ABC Ltd. fails to make the payment within the due date and pays Rs. 10 Lakhs to XYZ Ltd. on 15th April 2024.

In this Case, ABC Ltd. cannot claim deduction of Rs. 10 Lakhs as an expense in the financial year 2023-24. It has not paid the amount within the limit specified in section 15 of the MSMED Act, 2006. it can deduction only the in the financial year 2024-25, when it has actually paid the amount.

If ABC Ltd. has paid Rs. 10 Lakhs to XYZ Ltd. on or before 2nd March 2024, it could have claimed deduction in the financial year 2023-24 it self.

Conclusion:
Section 43B (h) of the Income Tax Act is a significant amendment that affects the tax deductions available to business that deal with micro and small enterprises.it aims to ensure timely payments to MSMEs and improve their cash flow situation. Businesses should be aware of this provision and comply with the payment deadlines under the MSMED Act, 2006, to avoid any disallowance of expense and interest liability. 


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If you have filed your Income Tax Return (ITR) for the Previous Financial Year and later realized that you have made some mistakes or missed some details, don't worry. You can Still rectify your errors by filing an updated return under Section 139(5) of the Income Tax Act, 1961. This Articles will explain the process and benefits of filing an updated return as per Income Tax Rules.

What is updated return?

An Updated return is revised return of the Original or defective return filed by a taxpayer. it allows the taxpayer to correct any errors or omissions in the original return, such as wrongly personal details, incorrect income or deductions mismatched tax credits, etc. An updated return can also file to claim a refund of excess tax paid or to pay additional tax due.   

Who can file an updated return?

Any Taxpayer who has filed a return under section 139(1) or in response to a notice under section 142(1) can file an updated return if they discover any mistake or omission in the original return. However, there are some Conditions and limitations for filing an updated return, such as:

- The Updated Return can be filed only before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier For example, for the financial year 2020-21, the updated return can be filed with March 31, 2022 or before the assessment is completed by the tax department, whichever is earlier.

- The Updated Return can be filed only once for a particular assessment year. However, if the original return was defective and the tax department issued a notice under Section 139(9), then the taxpayer can file an updated return more than once to rectify the defects.

- The Updated Return can be filed only online through the e-filing portal of the income tax department. The Taxpayer has to select the option of "Revised Return" and mention the acknowledgement number and date of filing of the original return.

- The Updated Return should have the same form and manner as the original return. For Example, if the original return was filed using ITR-1 Form, then the updated return should also be filed using ITR-1 form.

- The Updated return should have all the details of Income, deductions, taxes, etc., as per the latest information available with the taxpayer. The Taxpayer cannot omit or add any new source of income or deduction in the updated return.

Who cannot file the Updated Return?

- If an Updated return cannot be filed if it reflects total income as a loss.
- If an Updated return cannot be filed if it decreases the total tax liability determined based on an easier return

- If an Updated return cannot be filed if it results in a refund or increases the refund previously due on the basis of an earlier return.
- If an Updated return cannot be filed for the assessment year relevant to the previous year in which a search is initiated under section 132 and for any assessment year preceding such assessment year. For example, if a search was initiated on 01-06-2023, the updated return cannot be filed for the Assessment year 2024-25 and year preceding such assessment year.
- If books of account or other documents or any assets are requisitioned under section 132A
- If a survey conducted against the assessee under section 133A.
- If an Assessee shall not be eligible to file an updated return of the Year of which assessment or reassessment or recomputation or revision is pending or has been completed.


Time limit for filing the Updated Return?

    The Provision of updated returns is effective from 01-04-2022, and the time limit provided for filing an updated return is 24 months from the end of the relevant the assessment year For Example, In Financial year 2023-24, a person can file an updated return for AY 2021-22 and AY 2022-23.

Tax on Updated Return?
          The Provisions of section 140B provide for payment and computation of tax, interest, fee and additional income on updated returns. The Updated return shall be accompanied by the proof of tax payment. i.e., Normal tax (if any), additional tax, interest and fee as required under section 140B otherwise it shall be treated as a defective return. 

-If an Assessee files the ITR-U within 12 Months from end of the relevant Assessment year - 25% additional Tax plus Interest and Late filing fee as per Income Tax Act.

-If an Assessee files the ITR-U within 24 Months from end of the relevant Assessment year- 50% additional Tax plus Interest and late filing fee as per Income Tax Act.

What are the benefits of filing an updated return?

Filing an Updated return can help the taxpayer in many ways, such as:

- Avoiding penalties and interest for incorrect or incomplete reporting of income or taxes.
- Claiming refunds of excess tax paid or reducing tax liability for additional income or deductions.
- Matching tax credits with Form 26AS and avoiding mismatch notices from the department.
- Avoiding scrutiny or assessment proceedings by the tax department for erroneous or defective returns.
- Rectifying any adverse impact on credit score or loan eligibility due to incorrect tax filing.

How to file an Updated Return?

The process of filing an updated return is similar to filing a regular return, except that the taxpayer has to select the option of "revised return" and mention the acknowledgement number and date of filing of original return. The Steps are as follows:

- Login to the e-filing portal of the Income Tax Department using your User ID and Password.
- Go to "e-file" and select the Income Tax Return.
- Select the assessment year for which you want to file an updated return and choose 'Revised Return' under 'Filing Type'.
- Enter your PAN and Select ' ITR-Form Number' as per your Income and deduction. Click on 'Continue'.
- Enter your acknowledgement number and date of filing of your original return. Click on ' Continue.
- Fill in all the details of income, deduction, taxes, etc., as per your latest information. Make sure to correct any errors or omissions that you had make in your original return.
- Verify and submit your updated return using your digital signature (DSC) or electronic verification code (EVC). 
- You will receive an acknowledgement number and date for your updated return, you can check the status of your updated return on the e-filing portal.

Conclusion.
Filing an updated return is simple and convenient way to rectify any mistakes or omission in your original income tax return. it can help you avoid penalties, interest, notices, and scrutiny from the tax department. it can help you claim refunds or reduce your tax liability as per latest information. However, you should file an updated return only within the prescribed time limit and only once for a particular assessment year. You should also ensure that your updated return is accurate and complete in all respects. 

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If you are one of the many taxpayers who missed the deadline for filing your income tax return (ITR) for the Assessment year AY 2023-24, you might be feeling anxious and worried about the consequences. However, there is no need to lose hope, as you still have some options to file your belated return and avoid hefty penalties.

The deadline for filing ITR for AY 2023-24 was December 31, 2023, for most taxpayers, however, due to the COVID-19 pandemic and the disruptions caused by it, many people could not file their returns on time, The Government has not announced any extension of the deadline so far, but it may do so in the future, considering the hardships faced by the taxpayers.

If you have missed the deadline, you can still file your ITR as belated return under section 139 (4) of the Income Tax Act, 1961. A belated return can be filed anytime before the end of the relevant assessment year, i.e., March 21, 2024, or before the completion of the assessment by the department, whichever is earlier.

However, filing a belated return has some drawbacks. First, you will have to pay a late fee of Rs. 5,000 if you file your return after December 31, 2023, but before March, 31, 2024. The late fee will increase to Rs. 10,000 if you file your return after March 31, 2024. However, If your total income does not exceed Rs 5 lakh, the Maximum late fee will be Rs. 1,000.

Third, you will have to pay interest on any tax liability that remains unpaid after the due date. The interest rate is 1% per month or part of month from the due date  till the date of filing the return. you will also have to pay interest on any self assessment tax paid after the due date till the date of filing the return.


Fourth, you will not be able to revise your belated return if you discover any mistake or omission later. A revised return can only be filed if the original return was filed on or before the due date.


Fifth, you may face scrutiny or penalty from the government from the tax department if they find any discrepancy or concealment in your belated return. The penalty for concealment of Income can be up to 300% of the tax evaded.

Therefore, it is advisable to file your ITR as soon as possible and avoid these drawbacks, You can file your ITR online through the e- filing portal of the Income Tax department or through any authorized e return intermediary. you will need your PAN, Aadhaar, Bank Account details, Form 16 (Salaried), From 26 AS(If salaried), Form 26AS ( Tax Credit Statement ), other relevant documents to file your ITR.


You should also verify your ITR after filing it by either using Aadhaar Based OTP or net banking or sending a signed copy of ITR-V (acknowledgment) to CPC Bengaluru within 120 days of filing. Only after verification, your ITR will be processed by tax department and any refund due to you will be issued.


If you need any assistance or guidance in filing your ITR, you can consult a Professional Tax Advisor or get our experts consulting to file your Income Tax return with tax planning that can help you with the process.

Remember, Filing your ITR is not only a legal obligation but also a financial responsibility. it helps you to claim refunds, carry forward losses, apply for loans, and avoid penalties and notices from the tax department. so don't delay it any further and file your ITR Today.


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