External Confirmation in relation to Sec 43B(h) to the Vendor of Auditee

The Finance Act 2023 included Section 43B(h), which provides that any payment payable to Micro and Small Enterprises for products supplied or services performed may be deducted in the same year if made by the deadline specified by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

This amendment aims to address the issue of working capital constraint in the MSME market by encouraging prompt payments to micro and small businesses. This change, which takes effect on April 1, 2024, will apply to the assessment year 2024-2025 and any subsequent years.

Section 43B(h) encourages large companies or entities to settle debts with MSMEs within the stated time frame, which is 15 days without a written agreement and 45 days with an agreement. This ensures that MSMEs receive regular cash flow, which is critical to their long-term viability and growth.

This new section requires that payments for goods or services delivered by MSEs be settled within 45 days of acceptance. Businesses that fail to meet this deadline risk losing their ability to claim these payments as tax deductions.

Therefore, here in this article, we are presenting a draft letter for external confirmation in relation to Sec 43B(h) to the vendor of the auditee to be sent by the auditor.

Declaration of MSME Registration Status and Balance Confirmation

Dear Sir/Madam,

As part of our ongoing efforts to ensure compliance with statutory obligations in relation to the Tax Audit of our Client M/s________ and would appreciate your prompt cooperation. Specifically, we request that you confirm your registration status under the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.

If your organization is registered under the MSMED Act, kindly provide your MSME registration number along with a copy of the registration certificate. Additionally, please specify whether your enterprise falls under the Micro, Small, or Medium category as defined by the Act. In light of the above, we request that you provide the necessary details within 7 days from the receipt of this letter. This will enable us to maintain accurate records and ensure that all transactions are conducted in compliance with the applicable legal provisions. If we do not receive your response to this letter within 7 days, it will be assumed that you are not registered under The MSMED Act, 2006.

Further, You are requested to Kindly Confirm the Balance with our client as on 31.03.2024, within 7 days.

We appreciate your prompt response to this request. Should you require any further information or assistance, please do not hesitate to reach out.

Thank you for your cooperation.

Sincerely,

For ABC

Chartered Accountants

Proprietor/Partner

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