With the clock ticking towards the April 1 deadline, MSMEs are hustling to revise their agreements with traders and buyers in anticipation of the new 45-day payment rule. The lack of deliberation has led to apprehensions among MSMEs regarding potential disruptions in their relationships with buyers.
This is a significant regulatory change aimed at addressing the issue of delayed payments faced by MSMEs. While the intention behind the regulation is to ensure timely payments to the MSMEs, its implementation may pose challenges for both MSMEs and their buyers.
Tax Provision Triggers Preparations Amidst Uncertainty
Scheduled to come into effect from April 1, the impending income tax provision mandates that payments to MSMEs must be settled within 45 days by buyers. Consequentially, failure to adhere to this would result in tax liabilities for the buyer. This provision aims to streamline and expedite payments to MSMEs, a sector often grappling with delays in receivables.
Official data reveals that a staggering 4.13 crore MSMEs are registered on the Udyam portal, which includes the Udyam Assist Platform. Among these, a significant portion, totaling 4.05 crore, comprises micro-enterprises.
Furthermore, it is uncertain if the the provision is applicable to retail and wholesale traders. These traders were permitted to register on the Udyam portal as MSMEs starting from July 2021 to avail benefits of priority sector lending.
Also Read: 45-Day Payment Rule for MSMEs: Concerns Raised
Challenges Abound as MSMEs Navigate Regulatory Overhaul
Many buyers have initiated discussions with MSMEs to reassess existing arrangements or explore alternative payment mechanisms. Consequently, agreements allowing payments after 60 or 90 days, depending on the buyer’s export timelines, are being scrutinized for compliance.
With the deadline approaching, the MSMEs have limited time for contractual reviews and supply chain adjustments. Expressing concerns over the feasibility of swift adaptations, MSMEs stress the need for clarity amidst the evolving regulatory landscape.