The finance ministry is currently exploring modifications to the income tax rule regarding payments to micro, small, and medium enterprises (MSMEs) within a 45-day timeframe, with the new regulation scheduled to take effect from April 1. The move comes in response to industry demands, as various businesses seek either the deferment of the provision for a full financial year or an extension of the deadline.
The Finance Act of 2023 introduced a new clause (h) in section 43B of the Income Tax Act, stipulating that any sum payable by the assessee to a micro or small enterprise beyond the specified 45-day limit will only be allowed as a deduction upon actual payment. Failure to adhere to the timeframe will result in the buyer being liable for tax on the outstanding payment.
Finance ministry officials have acknowledged the industry’s concerns, stating that the government is actively considering amendments to the clause. Industry analysts have pointed out the potential uneven impact across different MSME sectors, emphasizing the importance of ensuring timely payments from larger entities to maximize the clause’s benefits for MSMEs.
The Confederation of All India Traders (CAIT) has urged the finance ministry to either postpone the implementation of the new rule for a year or suspend it until sufficient clarity is provided to businesses. CAIT Secretary-General Praveen Khandelwal emphasized the need for greater awareness among traders about the provision and suggested a delay to allow for a smooth understanding and compliance process.
Certain segments of MSMEs, particularly in the textile industry, express concerns about the potential repercussions on their relationships with suppliers and buyers, often operating on credit systems. The Tamilnadu Spinning Mills Association (TASMA) has requested amendments to the clause, advocating for a 90-day payment period, arguing that the nature of the goods requires additional time for value-addition processes.
As the April 1 deadline approaches, industry stakeholders, including CAIT and TASMA, are actively engaging with the finance and MSME ministries to address concerns and ensure a more seamless transition to the new regulatory framework.
