The finance ministry is deliberating over potential adjustments to the new income tax rule mandating business enterprises to settle payments to micro, small, and medium enterprises (MSMEs) within 45 days. Concerns have been raised from various quarters, with some advocating for a deferment of the provision by a full financial year, while others suggest extending the 45-day payment timeframe.
Assessment of Proposed Changes
According to sources familiar with the matter, the Department of Revenue is currently evaluating the proposal to determine the feasibility of any alterations. The rule is slated to be enforced from April 1, 2024. However, several businesses have petitioned for its postponement to April 1, 2025, citing readiness concerns and operational challenges.
Concerns Amidst Industry Dynamics
The apprehension surrounding the implementation of this rule stems from multifaceted issues. Notably, certain segments of MSMEs, particularly those in the textile industry, express apprehensions about potential disruptions to their relationships with suppliers and buyers. These small businesses often operate on credit systems, and the imposition of the 45-day payment rule could strain existing arrangements. Additionally, there are concerns regarding the readiness of systems to adhere to the stipulated time frame.
Also read: Approach to GST Litigation Workshop: Expert Insights
Promoting Timely Payments
Enacted under the Finance Act 2023, the amendment to section 43B of the Income Tax Act aims to incentivize punctual payments to micro and small enterprises. The insertion of a new clause in the Act mandates that any overdue payments beyond the specified 45-day limit outlined in the MSME Development Act 2006 will only be eligible for deduction upon actual payment. Failure to comply with the stipulated time frame will result in tax liability for the buyer.
Industry Advocacy and Calls for Suspension
The Confederation of All India Traders (CAIT) has urged Finance Minister Nirmala Sitharaman to suspend the implementation of the provision until achieving sufficient clarification and nationwide dissemination of information. CAIT has further proposed postponing the enforcement of the law from April 1, 2024, to April 1, 2025, providing traders with a one-year deferral period to mitigate potential adverse impacts on micro and small enterprises.
This ongoing discourse underscores the need for a balanced approach that addresses the concerns of stakeholders while upholding the objective of promoting timely payments within the MSME sector.