The Federation of All India Vyapar Mandal (FAIVM) is set to urge the new NDA government to extend the time period for payments to MSMEs from their buyers to up to 180 days from the current 45 days. This proposal aims to alleviate the financial strain on MSMEs caused by delayed payments. FAIVM President Jayendra Tanna shared these concerns in a discussion with FE Aspire.
The Call for Policy Change
Jayendra Tanna emphasized the need for a uniform policy on payments to suppliers of goods and services. “The new government should have a uniform policy on payments to suppliers within 180 days from the date of invoice issuance instead of the current 45 days,” said Tanna. This extension would provide MSMEs with more flexibility and stability in managing their cash flows.
Currently, traders, including wholesale and retail traders, are limited in raising bank credit under priority sector lending norms. Therefore, there is no mandate for their buyers to pay them within 45 days to be eligible for tax benefits. This disparity creates a financial burden for traders who do not receive timely payments.
Proposed Benefits for Traders
Tanna led FAIVM proposed that the new government should extend the benefits of MSME registration to include the delayed payment mandate for traders with Udyam registration from the MSME Ministry. This change would help traders manage their finances better and reduce the uncertainty associated with payment delays.
“The revised payment policy will also be able to address the provisions of GST (Goods and Services Tax) regulations,” added Tanna. Aligning the payment policy with GST regulations would streamline financial processes for MSMEs and traders alike.
Government’s Response and Promises
In May, while talking to MSMEs and local industries in Ludhiana, Finance Minister Nirmala Sitharaman indicated that the government might repeal the recent changes to Section 43B of the Income Tax Act in the full budget in July. These changes pertain to the delayed payments crisis for MSMEs. Sitharaman suggested that if MSMEs want to continue operating with uncertainty on payment timelines, the government would consider reverting to the original rule.
“If MSMEs want relaxation in payment made by their buyers without the 45-day limit, whether over 45 days, 150 days, or a year and further, then it is easy to make the changes. We will change it and go back to the original rule,” Sitharaman stated.
Legal Challenges and Supreme Court’s Decision
The Supreme Court on May 6 rejected a plea by FAIVM along with the Madras Merchants and Manufacturers Association and the Confederation of West Bengal Trade Associations. These bodies sought an interim stay on the new provision in the Income Tax Act or its quashing. The government had introduced a new clause (h) on April 1, 2024. This clause allows expenses to MSME buyers only if paid within 45 days in the year of actual payment, instead of the year when it was incurred as an expense.
Also read: Bank Credit to MSMEs Sees Significant Growth in April 2024
Presidential Endorsement and New Government Formation
President Droupadi Murmu invited Narendra Modi to form a government at the Centre. Modi is scheduled to be sworn in as India’s Prime Minister at 6 PM on June 9. This new government is expected to address the concerns raised by FAIVM and other trade associations regarding payment policies.
Implications for MSMEs and Traders
The proposed extension to 180 days for payment terms is a significant shift from the current 45-day period. It reflects the broader need for financial stability and operational flexibility for MSMEs and traders. Delayed payments have long been a challenge, impacting their cash flow and operational efficiency.
Extending the payment period to 180 days would allow MSMEs and traders to manage their finances better. It would also reduce the pressure on them to secure immediate payments, providing a buffer to handle operational costs and investments more effectively.
Addressing the GST Regulations
Aligning the revised payment policy with GST regulations is crucial. It ensures that businesses can comply with tax obligations without facing undue financial stress. The proposed changes aim to create a more balanced and supportive financial environment for MSMEs and traders.
Looking Ahead
The new government’s response to these proposals will be critical in shaping the future of trader operations in India. By extending the payment period to 180 days and aligning policies with GST regulations, the government can provide support to these sectors. This support will be vital for fostering growth, innovation, and economic stability.
The new NDA government’s approach to these issues will be closely watched by industry stakeholders. Ensuring timely payments and providing financial stability are essential. It will help the continued growth and success of MSMEs and traders across India.
Conclusion
The FAIVM’s call for extending the payment period for MSMEs to 180 days reflects the ongoing challenges faced by small businesses in India. By addressing these concerns and aligning policies with GST regulations, the new NDA government has the opportunity to provide significant support to MSMEs and traders. This support is crucial for fostering a stable and prosperous business environment in India.