MSMEs to Reapply for 45day Payment, says Sitharaman

By Deepa Srivastava --
Thursday, 30 May, 2024

Lately , there is been lot of speculation in the industry as regards to MSME payments. Finance Minister Sitharaman, during her interaction with MSMEs and local industries in Ludhiana, dispelled the controversy by saying, it was made on the request of MSMEs facing delays in payment from their buyers beyond the stipulated period. However, if the MSMEs want to continue without this rule and if the industry feel they don’t want this rule and will sort it amongst themselves, they should submit representations in the July budget, and the new government will do the amendments. The change in Income Tax Act was done based on the request of MSMEs, that since payments were not being made under 45 days, relief in Income Tax should be given (to buyers) for the year when the payment is made to them,” said she.

Acknowledging that Section 43B(h) has caused some apprehensions among both MSMEs and larger businesses, however replacing dependable suppliers just because a large company does not want to pay them in time is a ridiculous conclusion to draw, says the industry.

The clause (h), which came into effect on April 1, 2024, with 2024-25 as the assessment year (that is financial year 2023-24), allows expenses to buyers on invoices from micro and small enterprises only if paid within 45 days (where agreement exists) and within 15 days if there is no agreement in the year of actual payment instead of the year when it was incurred as an expense.

Certain sections of MSMEs including those part of the Clothing Manufacturers Association of India (CMAI) believed that the new clause is damaging to their working capital flow as the payment cycle between them and their buyers runs beyond 45 days, even up to six months. Hence, the changes made to the IT Act forcing them to pay within 45 days would result in business loss for MSMEs as buyers would prefer sellers outside the ambit of the MSME definition.

Moreover, traders also under the Federation of All India Vyapari Mandal (FAIVM) along with associations in Chennai and West Bengal, have been urging for repealing the changes made to the law. Traders are currently restricted to the benefit of priority sector lending under the MSME definition and hence, there is no mandate for their buyers to pay them in 45 days and be eligible for tax benefits.

MSMEs to Reapply for 45day Payment, says Sitharaman. Lately , there is been lot of speculation in the industry as regards to MSME payments. Finance Minister Sitharaman, during her interaction with MSMEs and local industries in Ludhiana, dispelled the controversy by saying, it was made on the request of MSMEs facing delays in payment from their buyers beyond the stipulated period. However, if the MSMEs want to continue without this rule and if the industry feel they don’t want this rule and will sort it amongst themselves, they should submit representations in the July budget, and the new government will do the amendments. The change in Income Tax Act was done based on the request of MSMEs, that since payments were not being made under 45 days, relief in Income Tax should be given (to buyers) for the year when the payment is made to them,” said she.

Acknowledging that Section 43B(h) has caused some apprehensions among both MSMEs and larger businesses, however replacing dependable suppliers just because a large company does not want to pay them in time is a ridiculous conclusion to draw, says the industry.

The clause (h), which came into effect on April 1, 2024, with 2024-25 as the assessment year (that is financial year 2023-24), allows expenses to buyers on invoices from micro and small enterprises only if paid within 45 days (where agreement exists) and within 15 days if there is no agreement in the year of actual payment instead of the year when it was incurred as an expense.

Certain sections of MSMEs including those part of the Clothing Manufacturers Association of India (CMAI) believed that the new clause is damaging to their working capital flow as the payment cycle between them and their buyers runs beyond 45 days, even up to six months. Hence, the changes made to the IT Act forcing them to pay within 45 days would result in business loss for MSMEs as buyers would prefer sellers outside the ambit of the MSME definition.

Moreover, traders also under the Federation of All India Vyapari Mandal (FAIVM) along with associations in Chennai and West Bengal, have been urging for repealing the changes made to the law. Traders are currently restricted to the benefit of priority sector lending under the MSME definition and hence, there is no mandate for their buyers to pay them in 45 days and be eligible for tax benefits.