The government is actively reviewing the concerns of stakeholders and assessing whether there are valid grounds for amendments to this 45-days payment rule for MSMEs.
45-days Payment Rule for MSMEs: The Finance Ministry is contemplating a revision to a recent tax regulation requiring businesses to settle payments to small and medium-sized enterprises (MSMEs) within 45 days.
There is a growing chorus among businesses for a later initiation of this rule or an extension of the payment period beyond the existing 45 days. Those advocating for a change argue that more time is needed for payments to be made smoothly.
A source familiar with the matter revealed that the government is actively reviewing these requests, assessing whether there are valid grounds for amendments. The new rule is slated to take effect on April 1, 2024, yet some are proposing a deferment to April 1, 2025.
The concerns prompting these calls for adjustment are varied. MSMEs, particularly in sectors such as textiles, fear that the regulation could strain their relationships with buyers and sellers who often operate on credit terms. Additionally, there are apprehensions about the readiness of systems to adapt to this new requirement.
In a bid to incentivize timely payments to small businesses, a new clause (h) in section 43B of the Income Tax Act mandates that businesses settle dues with small or micro-enterprises promptly. Any payment made beyond the stipulated period of 45 days, as per section 15 of the MSME Development Act 2006, will only qualify for deduction upon actual payment. Failure to comply within the specified timeframe could subject the buyer to taxation on the payment.
A recent plea from a trade association urged the finance minister to postpone the implementation of this rule until there is a comprehensive understanding across the board. They propose shifting the effective date to April 1, 2025, citing potential advantages for small businesses who might otherwise face tough competition from larger corporations.
Stay tuned for updates on this evolving situation as the Finance Ministry navigates the concerns raised by various stakeholders in the business landscape.
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