MSMEs protest 45-day payment rule, file
appeal in apex court
To ensure timely payments to micro, small and medium
enterprises (MSMEs), a new regulation was implemented on April 1. It requires
companies to settle their dues to MSMEs within 45 days. Non-compliance will
lead to a tax liability on the overdue amount.
More than 40,000 small businesses, including 12,000
in Gujarat, have cancelled their registration and approached the Supreme Court
with an appeal to remove the regulation, according to a report by CNBC Awaaz.
Since the regulation s implementation, numerous small businesses have reported
a decline in new orders from larger clients, said the TV news channel.
Under Section 43B(h) of the Income Tax Act 1961,
buyers purchasing goods from any of the 36 MSMEs are required to settle the
outstanding amount within 45 days.
What is Section 43B(h)?
The Finance Act 2023 introduced an amendment to the
Income Tax Act by adding clause (h) to Section 43B. This clause says that
payments owed to MSMEs, not resolved within 45 days, will not qualify for tax
deductions until the payment is made. The aim is to motivate larger entities to
prioritise their settlements with MSME counterparts, thereby promoting a more
robust economic environment for these smaller businesses.
Section 43B(h) is applicable to transactions that
involve the purchase of goods or services from enterprises registered under the
MSMED Act, 2006.
What it does
The section disallows businesses from claiming
deductions for expenses incurred towards goods or services purchased from MSMEs
if the payment is delayed beyond a specific timeframe. In simpler terms, if you
don't pay an MSME on time, you can't deduct that expense from your taxable
income, potentially increasing your tax liability.
In India, businesses typically record expenses
as they occur (accrual basis), regardless of whether the payment has been made.
However, Section 15 of the MSMED Act, 2006, alongside the newly introduced
Section 43B(h) of the Income Tax Act, mandates that businesses must settle
their dues with MSME Registered Enterprises within 15 days, or up to 45 days
under a mutual agreement.
From April 1, 2024, companies, sole proprietorships,
partnerships and LLPs are required to pay their suppliers registered as MSMEs
within 15 days, or up to 45 days under an agreement.
Confederation of All India Traders, which
represents small businesses, has appealed to Finance Minister Nirmala
Sitharaman for a deferral of the clause in the Income Tax Act related to MSME
payments until April 2025.
www.business-standard.com
dt. 04-05-2024