Finance Minister Nirmala Sitharaman has said the Centre is willing to reconsider the 45-day payment rule for micro, small, and medium enterprises if the industry wants it. Sitharaman said if MSMEs require an extended payment period, they can submit representations for "consideration in the upcoming July Budget".
In an interaction with MSMEs in Ludhiana, the minister assured that tax relief for these enterprises remains accessible. However, she emphasized that this relief is contingent upon timely payments, ensuring that businesses benefit while adhering to current payment schedules.
"If MSMEs, industry feel they don’t want this amendment and will sort it amongst themselves, and want this route to be changed, then do submit representations and definitely in the July budget, we will work towards it," Sitharaman said.
According to Section 43B(h) of the Income Tax Act, introduced through Finance Act 2023, if a larger company does not pay an MSME on time -- within 45 days in case of written agreements -- it cannot deduct that expense from its taxable income, leading to potentially higher taxes.
Some industry bodies have urged the government to postpone implementation of the new payment rules, the Federation of Indian Micro and Small & Medium Enterprises (FISME) is of the opinion that the new rule has the potential to be a game-changer for MSMEs.
MSMEs fear that due to this provision, large buyers could cold-shoulder MSME suppliers and start buying either from those MSMEs that are not registered with Udyam or from non-MSMEs. Acknowledging that Section 43B(h) has caused some apprehensions among both MSMEs and larger businesses, FISME said, "such fears are unfounded".
"Replacing dependable suppliers just because a large company does not want to pay them in time is a ridiculous conclusion to draw. In any case, in the worst eventuality, the tax thus paid over such delays can be adjusted the following year when the company pays the supplier. But it does instill discipline in commercial practices," the industry body said.