The world of tax compliance is complex, but it's crucial for businesses, especially when dealing with payments to Micro or Small Enterprises (MSEs). A recent update to Form 3CD, guided by the Central Board of Direct Taxes (CBDT), clarifies reporting requirements for delayed payments to MSEs. This article simplifies the amendments and their implications for easier understanding.
Table 1: Key Amendments and Notifications
| Notification | Date | Description |
|---|---|---|
| G.S.R. 155(E) | 05-03-2024 | Introduced an amendment to Clause 26 of Form 3CD, referencing Section 43B(h), to address disallowance of sums payable to MSEs if not paid within the MSMED Act's allowed time. |
| G.S.R. 223(E) | 19-03-2024 | Corrected an oversight by amending Clause 22 of Form 3CD, requiring the reporting of disallowances under Section 43B(h) and interest on delayed payments to MSEs. |
Discussion Points
Amendment to Clause 26 of Form 3CD: Initially, Clause 26 was amended to include references to Section 43B(h), targeting the disallowance of payments to MSEs not made in time. However, this amendment lacked clarity on reporting requirements for such delayed payments.
Rationale for Amendments: The Finance Act 2023 introduced clause (h) in Section 43B to penalize late payments to MSEs. This necessitated changes in Form 3CD to ensure tax audits could accurately report on these disallowances.
CBDT's Corrigendum: Addressing initial shortcomings, the CBDT issued a corrigendum to refine Form 3CD's Clause 22, ensuring comprehensive reporting of disallowed payments and associated interest due to delays, specifically under Section 43B(h).
Table 2: Implications of the Corrigendum
| Form 3CD Clause | Coverage | Implications for Tax Auditors |
|---|---|---|
| Clause 26 | Payments covered by clauses (a) to (g) of Section 43B. | Continues as before, excluding delayed payments to MSEs under clause (h). |
| Clause 22 | Delayed payments to MSEs liable under Section 43B(h). | Now requires reporting of disallowances and interest on such delayed payments. |
Tax Auditor's Checklist for Amended Clause 22
- No specific reporting format: Auditors must note the total disallowed amounts without needing a detailed breakdown.
- Assessment of disallowability: Payments made beyond the MSMED Act's due date must be critically evaluated for disallowability.
- Verification of MSE claims: Auditors should verify whether amounts due to MSEs are legitimate and comply with various sections of the Income-tax Act.
- Identification and verification of MSEs: Ensuring MSE suppliers are correctly identified and verified against the Udyam Registration portal is essential.
- Engagement letter requirements: Audit engagement letters should highlight the entity's obligations under the MSMED Act and Section 43B(h) of the Income-tax Act.
- MSE payment practices: The practices around cheque payments, bank reconciliation, and adherence to payment timelines per Section 15 of the MSMED Act require careful scrutiny.
Conclusion
The clarifications brought by the CBDT through its corrigendum ensure that tax auditors have a clear mandate on reporting disallowances and interest on delayed payments to MSEs. This move reinforces the commitment to supporting MSEs by penalizing delays in payments due to them. For businesses, staying compliant involves accurately reporting these transactions in their tax audits, following the detailed guidelines provided in the amended Form 3CD.
