45 Day MSME Payment Mandate u/s Section 43B(h) may be relaxed, Proposal Underway, hints Finance Ministry Official

MSME Payment Credit Period may be reviewed, or extended, hints Sources
MSME - MSME payment - MSME payment time - Taxation for MSME - Finance Ministry update - taxscan

The finance ministry is currently examining a proposal to modify the upcoming income tax regulation, which mandates business entities to settle payments to micro, small, and medium enterprises ( MSMEs ) within a 45-day timeframe.

Various businesses have requested a deferral of this provision for an entire financial year, while others seek an extension of the 45-day limit.

Two individuals familiar with the matter revealed that the department of revenue is evaluating the proposal to determine if any alterations are feasible.

The new rule is set to be effective from April 1, 2024, but numerous businesses advocate delaying its implementation until April 1, 2025.

Concerns have arisen due to several issues. Some MSMEs, particularly those in the textile industry, fear that the new rule may impact their relationships with suppliers and buyers who often operate on a credit system with these small businesses. Others express concerns about their systems not being adequately prepared for this provision.

In a bid to encourage prompt payments to micro and small enterprises, the Finance Act 2023 introduced a new clause (h) in section 43B of the Income Tax Act. This clause stipulates that any amount owed by the assessee to a micro or small enterprise beyond the specified 45-day limit in section 15 of the MSME Development Act 2006 will only be deductible upon actual payment. Failure to make timely payments will subject the buyer to tax obligations.

Enroll in Course to Know More about Updated Income Tax Returns – Live Online Masterclass on ITR U (Income Tax Updated Return)

Notably, the Confederation of All India Traders has written to Finance Minister Nirmala Sitharaman, urging the suspension of the provision’s implementation until sufficient clarification and widespread information dissemination are achieved.

The organization further appeals for a one-year deferral period, postponing the law’s implementation from April 1, 2024, to April 1, 2025, to mitigate adverse effects on micro and small enterprises, as they anticipate a preference for working with medium enterprises due to this regulatory change.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates