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CS Executive · Tax Laws and Practice · Computation of Total Income and Tax Liability of various Entities

Under the Income-tax Act, 2025, a company owes Rs 2,50,000 to a micro enterprise for supplies, and payment is made after the time limit specified in section 15 of the MSMED Act, 2006. The payment is made after the end of the tax year but before the return due date. Which statement is correct?

The deduction is allowed only in the tax year in which the payment is actually made. Sums owed to micro or small enterprises beyond the MSMED time limit are excluded from the return-due-date relief in section 37(3).

  1. ADeduction is allowed in the year of expenditure because payment was before the return due date
  2. BDeduction is allowed only in the tax year of actual payment, as the return-due-date relief does not cover this sumCorrect
  3. CDeduction is permanently disallowed
  4. DDeduction is allowed in both years in equal parts

Explanation

Section 37(2)(g) covers amounts payable to micro or small enterprises beyond the MSMED time limit. Sub-section (3) extends the return-due-date relief to all sums in sub-section (2) except clause (g). So the deduction is allowed only in the year of actual payment.

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