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All manufacturing, service industries, wholesale, and retail traders that fulfil the revised MSME classification criteria of annual turnover and investment can apply for MSME registration. Thus, the MSME registration
MSME registration:
Note: It is to be note that Registration under MSME act is not mandatory.
Revised MSME Classification | |||
Criteria | Micro | Small | Medium |
Investment in Plant and Machinery or Equipment | Does not exceeds Rs.1 crore | Does not exceeds Rs.10 crore | Does not exceeds Rs.50 crore |
Annual Turnover | Does not exceeds Rs.5 crore | Does not exceeds Rs.50 crore | Does not exceeds Rs.250 crore |
If written signed agreement is available between buyer and supplier, the buyer should make payment to the supplier of the goods or services within 45 days from the date of acceptance of the goods or services.
Provided that if credit period specified in the agreement between parties exceeds 45 days, then, notwithstanding the agreement, the payment has to be made within the period of 45 days.
Note: If payment made after 45 days but, in the same year of purchase then, in that case deduction shall be allowed in that year itself.
Bill Date | Due Date as per MSME Act (45days) | Payment Date | Agreement made with Supplier | Year of Deduction of Purchase |
15 May 2023 | 30 June 2023 | 31 March 2024 | Yes | FY 2023-24 |
15 May 2023 | 30 June 2023 | 3 April 2024 | Yes | FY 2024-25 |
1 January 2024 | 15 February 2024 | 15 February 2024 | Yes | FY 2023-24 |
1 January 2024 | 15 February 2024 | 31 March 2024 | Yes | FY 2023-24 |
1 January 2024 | 15 February 2024 | 10 April 2024 | Yes | FY 2024-25 |
20 February 2024 | 5 April 2024 | 5 April 2024 | Yes | FY 2023-24 |
20 February 2024
| 5 April 2024 | 6 April 2024 | Yes | FY 2024-25 |
Section 16 of the MSMED Act provides, where any buyer fails to make payment to the supplier, as required under section 15, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day (day after expiry of 45 / 15 days) at 3 times of the bank rate notified by the RBI.
The MSME supplier can also file an application before the Micro and Small Enterprises Facilitation Council (MSEFC) in case of non-payment or delayed payment by the buyer.
A Ltd purchased goods on credit from B Ltd value Rs. 5,00,000/-. Invoice date 25th February, 2024
Part Payment made on Following Dates | Allowed as Expenses in the Year | |
No Agreement Between Buyer & Seller Due Date: 11th March, 2024 | Agreement present Between Buyer & Seller Due Date: 10th April, 2024 | |
1st part – 5th March 2024 Rs. 1,00,000/- | 2023-2024 | 2023-2024 |
2nd part – 25th March 2024 Rs 2,00,000/- | 2023-2024 (Int. Payable) | 2023-2024 |
3rd part – 10th April 2024 Rs 1,00,000/- | 2024-2025 (Int. Payable)** | 2023-2024 |
4th part – 15th April 2024 Rs. 1,00,000/- | 2024-2025 (Int. Payable)** | 2024-2025 (Int. Payable) ** |
**It means that if you fails to pay on due date or till the last date of FY then, interest will payable and purchase/expense will be disallowed as deduction and if payment is made on due date, then no interest liability will get attracted and deduction of purchase/expenses will be allowed in same year but, if payment made after due date and till the last date of FY, then it will result in allowance of such purchase/expense but, interest will be payable on delayed payment.
(Interest payable to the supplier is 3 times of the bank rate notified by the Reserve Bank of India compounding on monthly basis)
As per section 16 of the MSMED Act, the payment of interest on delayed payment is in the nature of penalty. Therefore, Payment of interest on delayed payment to MSME shall not be allowable as deduction for the purposes of computation of income under the Income Tax Act, 1961.
If, the buyer has claimed such payment of interest as expenses in its statement of profit & loss then, such expenses to be added back to Net Profit while computing the total income under Income Tax Act, 1961.
As per clause 22 of the Tax Audit, Tax Auditor should report the amount of interest inadmissible u/s 23 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED, Act 2006).
** Specified time limit If Written agreement between Buyer & Supplier then, maximum of 45 Days. If No Written agreement between the Buyer & Supplier then, maximum of 15 Days
From current financial year 2023-24, we need to bifurcate creditors in balance sheet in the following way:
(Caution: Sometimes payment of firms in same group are outstanding so take care of that as well)
Many people are confused about how to check whether a creditor is an MSME and whether its financials need to be reviewed. However, it has been clarified in Taxmann’s book on Tax Audit that only a Udyam-registered micro or small enterprise must be considered for section 43B(h)
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