Extract of the CBDT Notification-80/2023
The Central Board of Direct Taxes (CBDT) recently issued an important notification, Number 80/2023 dated September 22, 2023, pertaining to the classification of Non-Banking Financial Companies (NBFCs) for the purpose of clause (da) of section 43B of the Income Tax Act 1961.
The notified classifications encompass three distinct layers within the NBFC sector:
(a) all NBFCs classified in the Top Layer;
(b) all NBFCs classified in the Upper Layer;
(c) all NBFCs classified in the Middle Layer.
Clarification
Section 43B of the Income Tax Act, 1961 stipulates that, in order to qualify for a deduction in the relevant previous year when an expenditure is made, the taxpayer must ensure that the specific expenses are settled on or before the due date for filing the income tax return under section 139(1). This pertains to the previous year in which the liability to pay such a sum was incurred.
Within the purview of Clause (da) of Section 43B, the designated expense is defined as the “interest on any loan or borrowing from a deposit-taking non-banking financial company or a systemically important non-deposit taking non-banking financial company.” The classification of Non-Banking Financial Companies (NBFCs) relevant for this purpose has been outlined in this Notification 80/2023.
Subsequent to this notification, in clause (da), the phrase “a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company” would be updated to “such class of non-banking financial companies as notified by the CBDT after the notification in the Official Gazette by the central government in this behalf.” This amendment enhances the flexibility and adaptability of the clause, allowing for more precise categorization of non-banking financial companies as notified by the Central Government. It aims to streamline regulatory procedures and ensure that the Act remains current and aligned with evolving financial landscapes. Stay updated with these changes for a comprehensive understanding of the applicable regulations and their implications.
In this respect, it is advisable for the taxpayers to consider this classification while preparing their financial accounts and Tax Audit reports for the fiscal year 2023-24 onwards, specifically while booking their interest expenditure as specified under clause (da) of section 43B of the Income Tax Act.
Notification No-80/2023 (CBDT)
Complete List of Expenditures Specified under Section 43B
(a) Any sum payable by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force;
(b) Any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees;
(c) Bonus or Commission for services rendered payable to employees;
(d) Any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation;
(da) Any sum payable by the assessee as interest on any loan or borrowing from a deposit taking non-banking financial company or systemically important non-deposit taking non-banking financial company, in accordance with the terms and conditions of the agreement governing such loan or borrowing;
(e) Interest on any loan or advance from a scheduled bank or co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, in accordance with the terms and conditions of the agreement governing such loan or borrowing;
(f) Any sum paid by the assessee as an employer in lieu of earned leave of his employee;
(g) Any sum payable by the assessee to the Indian Railways for use of Railway assets;
(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006. (Applicable from FY 2023-24).
Note: In compliance with the Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006, Section 15 outlines the stipulated timeframes for payments. When a supplier provides goods or services to a buyer, the buyer is obligated to make the payment within the agreed-upon duration. If a written agreement is in place, the maximum permissible period for payment is 45 days from the date of goods delivery or service completion. In the absence of a written agreement and with no objections from the buyer, the payment is required to be made within 15 days from the date of goods delivery or service completion
Conclusion
Adhering to the provisions of Section 43B of the Income Tax Act holds significant importance, particularly in ensuring accurate recording of expenditures by taxpayers. It’s imperative for taxpayers to stay informed about the recent update by the CBDT regarding the classification of Non-Banking Financial Companies (NBFCs). This knowledge should be integrated into their approach when preparing financial accounts and tax audit reports for the fiscal year 2023-24 onwards. By doing so, taxpayers can effectively align their financial practices with the updated regulations, promoting compliance and transparent financial reporting.
Follow the Link to download the Notification-https://incometaxindia.gov.in/communications/notification/notification-80-2023.pdf
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