Businesses navigate new tax law impacting MSE payments, seek government intervention
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'. Thus, deduction disallowance for unpaid outstandings would increase the taxable income and tax of companies for FY24.
In grappling with the new statute, companies and vendors are trying to escape its impact in different ways — some of which may not later stand the scrutiny of the auditors and tax office.
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For instance, many companies are sending registered letters to vendors asking them if they are classified as MSEs with a tacit understanding that the latter would not respond. In the absence of a response, the vendor is not considered as a government-registered MSE and the purchases are treated as deductible.
«Some companies are issuing cheques to suppliers and showing the payment in the books with the understanding that the suppliers would deposit the cheques only on the agreed dates. There are those who are raising an objection within 15 days from the delivery of goods, in which case the payment obligation would arise only
