Textile Sector Raises Concerns Over New Income Tax Act Clause Impacting MSME Payments

The textile industry is expressing apprehension over the repercussions of a newly introduced clause in the Income Tax Act, 1961, as part of the Finance Act 2023, concerning payments to Micro and Small Enterprises (MSMEs). Under Section 43B(H) of the Finance Act 2023, the Finance Ministry mandates payments for goods supplied by MSMEs to be settled within 45 days, aligning with provisions in Section 15 of the MSMED Act, 2006, aimed at ensuring timely payments to protect MSMEs from financial strains.

The Tamil Nadu Spinning Mills Association (TASMA) has raised concerns, asserting that the new clause has sparked panic among suppliers and buyers within the textile value chain. TASMA highlights that many buyers, accustomed to flexible payment terms agreed upon mutually, are now hesitant to accept goods under the restricted 45-day payment window.

Traditionally, certain segments of the textile industry have operated with a 90-day payment period, which both suppliers and buyers have found acceptable. This extended timeframe accommodates the intricate nature of textile goods that undergo further value addition processes. TASMA emphasizes the necessity of retaining the 90-day settlement period to ensure smooth business operations.

In response to these challenges, TASMA urges the MSME Ministry to consider amending the clause to allow for a 90-day payment window for transactions involving micro, small, and medium enterprises. The association proposes that if a general amendment to the Act is not feasible, a tailored provision specifically addressing the textile industry's practices could be considered.

The textile sector's concerns underscore the importance of balancing regulatory requirements with industry dynamics to sustain operational efficiencies and foster growth. Addressing these apprehensions through collaborative dialogue between industry stakeholders and policymakers is crucial to promoting a conducive environment for MSMEs and ensuring the continued vibrancy of the textile sector.