[Opinion] Form 3CD Clause 22 | MSME Payment Reporting Post Utility Release

CA Siddharth Patel- [2025] 176 taxmann.com 841 (Article)

With the recent release of the Income Tax Audit Utility by the Income Tax Department, professionals have gained greater clarity on how to accurately report disclosures under Clause 22 of Form 3CD, specifically those pertaining to payments made to micro and small enterprises (MSEs) covered under Section 15 of the MSME Act. This clause, which draws relevance from Section 43B(h) of the Income Tax Act, 1961, has been a matter of significant professional debate due to its implications on the allowability of deductions related to delayed payments. The Utility now offers a more structured and granular reporting format that aims to align statutory tax audit disclosures with legislative intent.

Earlier, the exposure draft of the Guidance Note issued by the Institute of Chartered Accountants of India (ICAI) had attempted to provide a broad framework for interpreting Clause 22. While it did shed light on some of the reporting obligations under the clause, it fell short of addressing the finer nuances associated with the classification of payments, cut-off dates, and timelines for deductibility under Section 43B(h). The draft’s generality left scope for varied interpretations, particularly when evaluating whether a payment delay would render an expense inadmissible for the relevant assessment year.

Now, with the utility in place, there is a clear bifurcation in reporting under sub-clauses 22(ii) and 22(iii), which focuses on distinguishing between payments made within and beyond the prescribed time limits laid out under the MSME Act. This structure not only enforces greater compliance but also ensures that taxpayers and auditors adopt a uniform approach in determining the allowability of expenses based on actual payment timelines. It is especially relevant in cases where expenses are otherwise due but unpaid within the stipulated time and thus disallowed under Section 43B(h).

This article aims to offer a detailed examination and interpretation of the revised reporting requirements, keeping in mind both the technical construct of the Utility and the substantive legislative intent. Special focus is placed on aligning reporting under Clause 22 with the objective of discouraging delayed payments to MSEs, a core principle underlying Section 43B(h). By delving into practical examples, FAQs, and key takeaways from the Utility, the article also seeks to assist auditors and businesses in navigating the new reporting regime with clarity and consistency.

 Click Here To Read The Full Article