Amidst mounting concerns and industry pushback, the Finance Ministry is considering pushing back the implementation of the 45-Day Micro, Small, and Medium enterprises (MSMEs) Payment Rule from April 2024 to 2025.
This decision comes in response to a deluge of representations from various sectors, submitted to the finance ministry, highlighting apprehensions about the shorter payment cycle mandated by the rule.
Many stakeholders argued that the stringent timeline challenges traditional business practices and has already resulted in order cancellations, exacerbating the already precarious financial situation faced by MSMEs.
According to sources informed to CNBC-TV18, the proposed postponement, if enacted, is expected to span a full financial year, with the rule anticipated to take effect from April 1, 2025.
The genesis of this regulatory amendment lies in the Finance Act of 2023, which brought about significant changes to the Income Tax Act. Among these changes was the introduction of clause (h) in Section 43B, aimed at ensuring timely payments to MSMEs, a sector vital to India’s economic fabric.
The revised rule mandates that large enterprises settle payments to Micro and Small Enterprises within 45 days of receiving goods or services. In instances where there’s no formal written agreement, the payment window shortens to a mere 15 days.
Crucially, Clause 43B(h) of the Income Tax Act imposes restrictions on expenses for buyers on MSME invoices unless these are settled within the stipulated 45-day period, provided that there is a written agreement in place.
While the exact reasons behind the potential postponement remain undisclosed, industry experts speculate that it could be a response to concerns raised by stakeholders regarding the practicality and feasibility of implementing the rule within the current economic landscape.
Moreover, with the upcoming General Election for the 18th Lok Sabha in India slated for April and May, it seems improbable that the reassessment of the MSME Payment Rule will occur prior to the issuance of election notifications.
Also read: Section 43B(h) Menace: MSME Payment 45 Days Time Limit Extension Unlikely Anytime Soon!
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