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CS Professional · Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Returns of various Entities excluding Companies

Under the Income-tax Act, 2025, Kapoor Foods, a partnership firm, owes ₹4,00,000 to a micro enterprise supplier beyond the time limit in section 15 of the MSMED Act, 2006, and pays it after the end of the tax year but before the return due date. When is the deduction available?

The deduction is available only in the tax year of actual payment. Section 37(3) allows the return-due-date relaxation for the listed sums except the clause (g) amount owed to micro or small enterprises beyond the MSMED Act time limit, so late payment shifts the deduction to the payment year.

  1. AIn the tax year the liability was incurred, because it was paid before the return due date
  2. BIn the tax year of actual payment, because the section 37(3) relaxation does not cover this sumCorrect
  3. CIn neither year
  4. DIn both years in equal halves

Explanation

Section 37(2)(g) covers amounts payable to micro or small enterprises beyond the section 15 time limit. Section 37(3) extends the relaxation to the listed sums except clause (g). So the deduction is allowed only in the year of actual payment.

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