BIG NEWS: 45-day payment rule to MSMEs: Finance Ministry looking at a possible tweak.
The finance ministry is looking into a proposal to tweak the new income tax rule under which business enterprises will be required to make payments to micro, small and medium enterprises (MSMEs) within 45 days.
Some businesses have sought deferment of the provision by a full financial year while others have requested that the 45-day time limit be extended.
“The department of revenue is reviewing the proposal to assess if there is any change possible,” said two persons familiar with the development. The new rule, will come into effect from April 1, 2024 but many businesses have sought deferring it by one year to April 1, 2025.
The concern stems from multiple issues. A section of MSMEs, such as those in the textile industry, are worried that this new rule could impact their relations with suppliers and buyers, who often work with these small businesses on a credit system. Others are worried that their systems are not ready for this provision.
In order to promote timely payments to micro and small enterprises, the Finance Act 2023 inserted a new clause (h) in section 43B of the Income Tax Act to provide that any sum payable by the assessee to a micro or small enterprise beyond the specified time limit of 45 days in section 15 of the MSME Development Act 2006 will be allowed as deduction only on actual payment. The buyer will have to pay tax on the payment if it is not done in the specified time limit.
Recently, the Confederation of All India Traders had also written to finance minister Nirmala Sitharaman had called for suspension of the implementation of the provision until sufficient clarification and information dissemination are achieved nationwide. CAIT further appealed to the government to postpone the implementation of this law from April 1, 2024, to April 1, 2025, to provide traders with a one-year deferral period. “This will affect the business of micro and small enterprise adversely as the industry will prefer to work with medium enterprise,” it had said.