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TAX UPDATES Section 43B(h): MSME Vendor Payment Compliance Checklist 45-day / 15-day payment rules · UDYAM verification Year-end disallowance checklist · Form 3CD disclosure FY 2026-27 · Mumbai & Pune 45 Days (with agreement) 15 Days (no agreement) 10 Year-end checklist items MSME CLASSIFICATION — SEC 43B(h) MICRO Inv ≤ Rs. 1Cr · TO ≤ Rs. 5Cr 43B(h) APPLIES ✓ SMALL Inv ≤ Rs. 10Cr · TO ≤ Rs. 50Cr 43B(h) APPLIES ✓ MEDIUM Inv ≤ Rs. 50Cr · TO ≤ Rs. 250Cr DOES NOT APPLY ✗ UDYAM CERTIFICATE REQUIRED TO VERIFY CA Nainit Savla · Founder, NDS Advisors · Mumbai & Pune NDS ADVISORS · CHARTERED ACCOUNTANTS ⚠  Section 43B(h) applies to FY 2026-27 — Outstanding MSME payables at March 31, 2027 will be disallowed if not paid within prescribed limits. Act before year-end. When Finance Act 2023 introduced Section 43B(h) into the Income Tax Act, it created a new compliance obligation for every Indian business that purchases goods or services from Micro or Small Enterprises: pay within the time limits prescribed under the MSMED Act or lose the tax deduction for that year. Three financial years on, Section 43B(h) non-compliance remains one of the most common — and most avoidable — tax disallowances found during NDS Advisors’ tax audit and advisory engagements across Mumbai and Pune. The reason is straightforward: many businesses have not built a systematic process to identify which vendors hold Udyam Registration as Micro or Small Enterprises, track payment due dates for each MSME invoice, and flag outstanding balances before the March 31 year-end. Without that system, the disallowance under Section 43B(h) is invisible until the tax audit — at which point it increases taxable income, creates additional tax liability, and requires disclosure in the Form 3CD report. What Is Section 43B(h) and How Does It Work? Section 43B of the Income Tax Act lists categories of expenditure that are deductible only when actually paid, not when accrued. The Finance Act 2023 added clause (h) to this section, effective from FY 2023-24 (AY 2024-25 onwards). Section 43B(h) in plain terms: Any sum payable to a Micro or Small Enterprise registered under the MSMED Act 2006 for goods or services supplied shall be allowed as a deduction only if paid within the time limits prescribed under Section 15 of the MSMED Act. If not paid within those limits, the sum is disallowed in the year it was incurred and becomes deductible only in the year in which it is actually paid. The critical word is “accrual basis” — Section 43B(h) overrides the normal accounting practice of recognising expenses when incurred. Even if your books show the expense and payable in full compliance with accounting standards, if the actual cash payment to the MSME vendor did not happen within the prescribed window, the disallowance applies for income tax purposes. Which Vendors Are Covered? The Micro and Small Distinction This is the most important initial determination. The provision applies only to Micro and Small Enterprises as classified under the MSMED Act 2006. It does not apply to Medium Enterprises or to unregistered vendors. Enterprise Category Investment in Plant & Machinery Annual Turnover Sec 43B(h) Applies? Micro Enterprise ≤ Rs. 1 crore ≤ Rs. 5 crore YES ✓ Small Enterprise ≤ Rs. 10 crore ≤ Rs. 50 crore YES ✓ Medium Enterprise ≤ Rs. 50 crore ≤ Rs. 250 crore NO ✗ Unregistered vendor (no UDYAM) Not applicable Not applicable NO ✗ The MSME classification is based on the vendor’s own Udyam Registration certificate. A buyer cannot independently determine a vendor’s MSME classification — it must be verified from the UDYAM certificate issued by the Ministry of MSME. This creates a practical compliance step: collect the UDYAM certificate from every vendor before recording them in the accounting system, and note whether they are Micro, Small, or Medium. Payment Timelines Under Section 43B(h) Section 43B(h) references the payment timelines set out in Section 15 of the MSMED Act 2006. Situation Payment Deadline Key Rule Written agreement exists between buyer and MSME supplier 45 days from date of acceptance of goods/services Contract cannot extend beyond 45 days — any clause giving longer credit is invalid No written agreement (or agreement silent on payment terms) 15 days from date of acceptance of goods/services 15 days is the “appointed day” under MSMED Act — no exceptions What Counts as “Acceptance”? Physical receipt and actual acceptance of goods or completion of services → date of acceptance Delivery made, no objection raised within 15 days → date of delivery = deemed date of acceptance For services: date the service was completed and accepted by the buyer For partial deliveries: date of acceptance of each delivery consignment separately ⚠ Critical distinction: The 15-day / 45-day clock starts from acceptance date, not from the invoice date. If goods are delivered on July 1 but the invoice is dated July 10, the clock starts from July 1. Many businesses get this wrong when tracking payment due dates. How Section 43B(h) Disallowance Is Computed: A Worked Example Worked Example — FY 2026-27 Company ABC (Mumbai-based trader) has MSME vendor XYZ registered as a Small Enterprise under UDYAM. ABC purchases goods from XYZ with a written payment agreement of 30 days from acceptance. Invoice Date of Acceptance Due Date (30 days) Amount (Rs.) Paid by 31 Mar? Invoice 1 1 Feb 2027 3 Mar 2027 5,00,000 Yes — paid 28 Feb Invoice 2 10 Feb 2027 12 Mar 2027 3,00,000 No — outstanding 31 Mar Invoice 3 1 Mar 2027 31 Mar 2027 2,00,000 Yes — paid 31 Mar Invoice 4 15 Mar 2027 14 Apr 2027 4,00,000 Not yet due at 31 Mar Section 43B(h) disallowance for FY 2026-27 = Rs. 3,00,000 (Invoice 2 only) Invoice 1 and Invoice 3 paid within due date → Allowed. Invoice 4 not yet due at March 31 → Allowed in this year. Invoice 2’s Rs. 3,00,000 is added back to taxable income for FY 2026-27. At 25% tax rate → additional

ENTITY INTEREST TYPES — IND AS 112 Reporting Entity Sub- sidiaries Joint Ventures Asso- ciates Structured Entities Full consol. Equity method Equity method Off-balance Ind AS 110 Ind AS 111/28 Ind AS 28 App. A GOVERNED BY: IND AS 112 (= IFRS 12) AUDIT & ASSURANCE Ind AS 112: Disclosure of Interests in Other Entities Subsidiaries · JVs · Associates · Structured Entities SEBI LODR Implications · Judgment Disclosures 5 Entity types 4 Judgment areas 7 Common gaps COVERAGE SCOPE Subsidiaries / NCI JVs & Associates Structured Entities CA Nainit Savla · Founder, NDS Advisors NDS ADVISORS · CHARTERED ACCOUNTANTS Ind AS 112 (Disclosure of Interests in Other Entities) is the standard that tells investors, analysts, lenders, and regulators what a company’s consolidated financial statements do not immediately show: which entities are in the group and why, what restrictions exist on moving assets between group members, how significant the non-controlling interests are in each material subsidiary, what the company’s exposure is to off-balance-sheet structured entities, and what significant judgments management has made in deciding who to consolidate and who to leave out. For listed Indian companies, Ind AS 112 compliance intersects directly with SEBI LODR obligations — the definition of subsidiaries, material subsidiaries, and associates that drives quarterly disclosure obligations, related party transaction reporting, and audit committee review responsibilities flows directly from the Ind AS 110, 111, and 28 framework that Ind AS 112 requires to be disclosed. Getting Ind AS 112 disclosure wrong is therefore not just an accounting standards compliance gap — it can create gaps in regulatory disclosures to stock exchanges. What Is Ind AS 112 and Why Does It Matter? Before the introduction of Ind AS 112 (the Indian equivalent of IFRS 12), disclosure requirements for a company’s interests in other entities were scattered across multiple standards — separate requirements existed for subsidiaries, associates, joint ventures, and off-balance-sheet vehicles, often with inconsistent levels of detail. The result was that a sophisticated investor or lender could read a set of consolidated financial statements without getting a clear picture of the full network of entities the reporting company was involved with, or the risks and restrictions attached to those relationships. The overriding objective of Ind AS 112: to enable users of financial statements to evaluate the nature, extent, and financial effects of the reporting entity’s interests in other entities — and the risks associated with those interests. The standard applies to all entities preparing Ind AS financial statements that have interests in subsidiaries, joint arrangements, associates, or unconsolidated structured entities. For companies that are in the process of or have recently completed Ind AS implementation, the notes required under Ind AS 112 often represent the largest increase in disclosure volume compared to previous Indian GAAP financial statements — particularly for groups with complex ownership structures, offshore entities, or structured financing arrangements. The Five Entity Types Covered Under Ind AS 112 Ind AS 112 covers disclosures for five distinct types of interests. A common mistake is to provide a single combined disclosure for all interests without the entity-type-specific details that the standard requires. Entity Type Relationship Basis Accounting Method Key Ind AS Subsidiaries Control — Ind AS 110 Full consolidation Ind AS 110 Joint Operations Joint control; rights to assets / obligations for liabilities Line-by-line (own share) Ind AS 111 Joint Ventures Joint control; rights to net assets Equity method Ind AS 111 + 28 Associates Significant influence (typically 20–50%) Equity method Ind AS 28 Unconsolidated Structured Entities Interest but not control Off-balance-sheet disclosure Ind AS 112 App. A The Judgment Disclosures — The Most Critical Requirement The most distinctive — and most commonly deficient — aspect of Ind AS 112 is its requirement to disclose significant judgments and assumptions used in determining the nature of interests in other entities. These are not boilerplate disclosures — they must explain the specific reasoning applied in situations where the answer is not obvious from the numbers alone. 1Control Without Majority Voting Rights (De Facto Control) Ind AS 110 defines control on a principles basis: an investor controls an investee when it has power over the investee, exposure to variable returns, and the ability to use its power to affect those returns. This means control can exist with less than 50 percent of the voting rights where, for example, the remaining shares are widely dispersed and in practice the company has always obtained the votes needed to pass resolutions. Where a company consolidates an entity with less than a majority of the voting rights — on the basis of de facto control — Ind AS 112 requires explicit disclosure of the basis for that conclusion: the number of voting rights held, how they compare to the dispersion of remaining rights, and why in practice the company has power over the relevant activities. 2Significant Influence Assessments The 20 percent ownership threshold for significant influence under Ind AS 28 is a rebuttable presumption — it can be overcome in either direction. A company may have significant influence with less than 20 percent if it has board representation, participates in policy decisions, or conducts material intercompany transactions. Equally, a company may hold 25 percent of voting rights but have no practical ability to influence the investee. Ind AS 112 requires disclosure of the basis for the significant influence conclusion in either direction — where influence is asserted below the 20 percent threshold, or where the absence of influence is concluded above it. These disclosures are frequently missing or insufficiently specific in practice. 3Joint Operation vs Joint Venture Classification The classification of a joint arrangement as a joint operation versus a joint venture depends on the rights and obligations of the parties — specifically whether they have direct rights to the assets and direct obligations for the liabilities. The legal form of the arrangement and its contractual terms must both be considered. Where a joint arrangement is conducted through a separate legal entity but is classified as a joint operation based on contractual terms that