Draft Letter to the Auditee by the auditor in relation to Compliance of Section 43B(h)

The Finance Act 2023 added Section 43B(h), which states that any payment owed to Micro and Small Enterprises for goods sold or services rendered may be deducted in the same year if paid by the deadline specified by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

This amendment seeks to solve the issue of working capital scarcity in the MSME market and encourage timely payments to micro and small firms. This adjustment, which takes effect on April 1, 2024, will apply to the assessment year 2024-2025 as well as any subsequent years.

So, here in this article, we are presenting a draft letter to be sent by the auditor to the auditee in relation to compliance of Section 43B(h).

Draft Letter

Name of the Firm / Company

Re: Reg. amendment to section 43B(h) viz. viz. MSME payments.

Dear Sir,

This is to bring to your notice that as per amended section 43B(h) introduced as per Budget 2023, delaying payment to MSME past 31st March 2024 shall be disallowed as an expense and to be allowed only on an actual payment basis. This has already been conveyed to you through our communication dated 24/01/2024. Now since the TAR (Tax Audit Report) is to be loaded on the portal by 30th September 2024 and therefore the finalization of financials for the year ended 31/03/2024 is in progress in this respect kindly provide us the following information: –

(i) In respect of your outstanding Creditors as of 31/03/2024 (other than Trader which are not directly purchasing from Micro and Small Enterprises and pertaining to Medium Enterprise as per MSME Act), you are requested to provide us a list of registered entities with the MSME so that any defiance of delayed payment to them is worked out in compliance to disallowance as envisaged in amended section 43B(h).

(ii) In case of Creditors outstanding as of 31/03/2024 and Registered as Micro and Small Enterprises (under MSME Act) please provide the details of Bills where payment is made beyond 15 days and in case you have an agreement with the vendor for making payment for 45 days or more, then the payment made after 45 days after the end of the financial year 2023-24.

Please ensure its immediate compliance but not later than 10 days from the receipt of this communication so that we proceed further in the matter.

Thanking you,

Yours faithfully,

For ABC

Chartered Accountants

Prop./Partner

Disclaimer: This Article is shared by CA NITIN KANWAR. He can be reached at [email protected].