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CMA Final · Corporate and Economic Laws · Specific Legal Provisions related to MSME Sector

Under the MSMED Act, 2006, how is interest payable or paid by a buyer under the Act treated when computing income under the Income-tax Act, 1961?

Interest payable or paid by a buyer under the MSMED Act, 2006 is not allowed as a deduction when computing income under the Income-tax Act, 1961. Section 23 applies this rule notwithstanding anything in the tax law, with no exceptions for timing or buyer type.

  1. AIt is allowed as a deduction only if paid within the same year
  2. BIt is allowed as a deduction only for a company buyer
  3. CIt is allowed as a deduction at fifty per cent
  4. DIt is not allowed as a deductionCorrect

Explanation

Section 23 says that, notwithstanding the Income-tax Act, 1961, interest payable or paid by a buyer under the MSMED Act is not allowed as a deduction in computing income. There is no partial or conditional allowance.

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