There is a new rule for companies as of 2024–2025. Any unpaid invoices to small companies must be settled by them in 45 days. They will be required to pay additional taxes for the years 2023–24 if they don't. This is so that they can only deduct the payments they make during that year. Businesses must abide by this regulation to prevent additional taxes.

What is Udyam Registration?
The Indian government created Udyam Registration, an online registration procedure, to make MSMEs' registration process easier. It takes the place of the earlier Udyog Aadhaar Memorandum (UAM) and EM-I/II systems. Offering MSMEs a simplified procedure to take advantage of the many government incentives and benefits is the main goal of Udyam Registration.

Clarification Criteria for MSME

The two main criteria used to categorize businesses as micro, small, or medium-sized are their turnover and their investment in plant and machinery or equipment. With the new definition taking effect on July 1, 2020, the following criteria apply:
These standards are applied when classifying MSMEs and granting them access to different government-sponsored programs and advantages, including priority sector lending, subsidies, and incentives.

What is Section 43B?

In India, businesses typically keep track of their expenses on an accrual basis, even if they haven't been paid for yet. Nonetheless, companies are required to pay these MSME Registered Enterprises within 15 days, or up to 45 days if they have an agreement, according to Section 15 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 and the recently passed Section 43B(h) of the Income-tax Act.

New tax laws in India, effective April 1, 2024, mandate that all business entities, including corporations, partnerships, sole proprietorships, and limited liability companies (LLPs), pay suppliers who are registered as MSMEs within 15 days, or up to 45 days if an agreement is in place.

Accordingly, a company can only deduct an expense from its income in the financial year 2024–25, not 2023–24, if it owes money to a small MSME Registered Enterprise for more than 45 days by March 31, 2024, and pays after April 1, 2024. This implies that businesses may need to adjust the way they close deals and handle their finances.

According to Sections 15 of the MSMED Act, 2006 and 43B(h) of the Income-tax Act, 1961, companies that buy goods or services from MSME-registered businesses must make the following payments.

Businesses will not be allowed to deduct these payments as expenses in the year that they are incurred if they fail to comply with this regulation. Rather, only the year in which they pay may they deduct them. Businesses are worried about this because it could mean they have to pay more taxes in the year 2024-25.

Benefits through Compliance & Mitigating Risks

Timely payment of supplier dues must be given top priority by Udyam registered units to guarantee compliance with Section 43B(h). This entails keeping careful track of each of these payments and making sure they are paid on schedule.

Even though it could seem difficult to ensure compliance with Section 43B(h), Udyam registered units can use it as a chance to improve their financial management procedures. SMEs can exhibit their dedication to openness and responsibility by keeping correct records and meeting payment deadlines. As a result, they gain greater credibility with all parties involved, such as government organizations, lenders, and investors.

Overcoming Challenges & Building Trust

Udyam registered units may find it difficult to comply with Section 43B(h) despite their best efforts. These difficulties could include things like tight finances or difficulty comprehending tax laws. Under such circumstances, SMEs ought to aggressively pursue assistance from trade associations, professional networks, and governmental organizations providing advisory services. Working together with colleagues and exchanging best practices can also yield insightful information about how to overcome typical compliance roadblocks.

Not only does Section 43B(h) guarantee that legal requirements are met, but it also helps Udyam registered units establish credibility and trust. Efficient payment of supplier and statutory obligations enhances the credibility and dependability of small and medium-sized enterprises (SMEs), cultivating confidence among suppliers, customers, and other associates.

Conclusion

In conclusion, for Udyam registered units, adherence to Section 43B(h) of the Income Tax Act is essential. To fully benefit from Udyam Registration and prevent tax penalties, small businesses must receive payments on time. A culture of continuous improvement, expert advice, and the use of digital tools are all important tactics for managing tax compliance and guaranteeing long-term growth. Every businessman and the economy will benefit once all members of the business cycle make their payments on time.

Sources – PNN Press Release, ANI, The Economic Times, Your Story

Source – Udyam Registration