The revised Section 43B of the Income Tax Act in India, specifically clause (h), has been amended to include provisions related to payments made to Micro and Small Enterprises (MSMEs). This amendment is applicable from the financial year 2023-24 onwards. Here’s an overview of the key aspects:

1. Payment Terms: If a payment to an MSME is not made within 45 days (or a shorter period if mutually agreed upon in writing, or 15 days if no specific agreement exists), the unpaid amount will be disallowed as a deduction for income tax purposes. This means the amount becomes taxable income in the year it was due but unpaid.
2. Day of Acceptance and Deemed Acceptance: The day of acceptance refers to the actual delivery date of goods or services, or the date when any written objection from the buyer is resolved. The day of deemed acceptance is when no objection is made within fifteen days from the delivery of goods or services.
3. Definitions of MSMEs: A micro enterprise is defined as one where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees. A small enterprise is defined as one where the investment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.
4. Deductions: The deduction for such expenses will be allowed in the year the payment is actually made. This is a shift from the previous provision where deductions were allowed based on the accrual method.
5. Application to Businesses and Professionals: This provision applies to all businesses and professionals dealing with micro and small enterprises, not medium enterprises. It necessitates separate classification of creditors as per their MSME status.
6. Tax Audit Reporting: Tax auditors must report compliance with this provision in their audit reports.

The amendment aims to encourage timely payments to MSMEs and ensure their financial stability. Businesses are advised to carefully manage their payments to MSME vendors to avoid additional tax liabilities and comply with the amended section 43B(h).