Dark
Light
Today: May 27, 2024
May 3, 2024

MSMEs Challenge 45-Day Payment Rule: Seek Relief from Supreme Court

The recent implementation of a 45-day payment regulation for Micro, Small, and Medium Enterprises (MSMEs) has sparked uproar within the small business community. Designed to ensure prompt payments to MSMEs, this regulation, enacted on April 1, mandates companies to settle their dues within the stipulated timeframe. Failure to comply incurs a tax liability on the overdue amount, a provision met with resistance from over 40,000 small businesses, including 12,000 in Gujarat. CNBC Awaaz reports a surge in appeals to the Supreme Court, seeking relief from this burdensome regulation that has disrupted the business landscape for MSMEs.

At the heart of this controversy lies Section 43B(h) of the Income Tax Act 1961, a provision introduced by the Finance Act 2023. This clause demands timely settlements between buyers and MSMEs, withholding tax deductions until payments are cleared within 45 days. The overarching goal is to incentivize larger entities to prioritize payments to MSMEs, fostering a healthier economic ecosystem for these vital contributors.

Section 43B(h) applies specifically to transactions involving goods or services procured from MSMEs registered under the MSMED Act, 2006. Its implementation disallows businesses from claiming deductions for expenses incurred from MSME transactions if payments are delayed beyond the specified timeframe. In essence, delayed payments could inflate tax liabilities, prompting concerns among businesses accustomed to the accrual basis of recording expenses.

Traditionally, Indian businesses record expenses as they occur, irrespective of payment timelines. However, the MSMED Act, 2006, supplemented by Section 43B(h) of the Income Tax Act, now mandates settlements within 15 days, extendable to 45 days under mutual agreement, effective April 1, 2024. This adjustment impacts a wide spectrum of entities, including companies, sole proprietorships, partnerships, and Limited Liability Partnerships (LLPs), necessitating expedited payment processing for MSME suppliers.

Amidst mounting dissent, the Confederation of All India Traders has petitioned Finance Minister Nirmala Sitharaman for a deferral of the Income Tax Act clause pertaining to MSME payments until April 2025. This appeal underscores the widespread concern among small businesses regarding the operational and financial implications of the new regulation.

In conclusion, while the 45-day payment rule aims to streamline transactions and bolster MSME viability, its implementation has triggered a wave of discontent among small businesses. The ongoing appeal to the Supreme Court and petitions to the Finance Ministry reflect the urgent need for reassessment and possible amendments to safeguard the interests of MSMEs and sustain the vibrancy of India’s entrepreneurial landscape.

Jhumpa Lahiri

Jhumpa Lahiri

At our news portal, we strive to be your go-to destination for staying informed about the latest developments, breaking news, and insightful analysis across a diverse range of topics. Whether you're interested in politics, technology, health, entertainment, or global affairs, we've got you covered with comprehensive coverage and in-depth reporting.

Previous Story

Unlocking Risk Management: Dollar Swap Options Return to India as RBI Reforms Lending Rules

Next Story

Asian Development Bank Ready to Invest in India’s Space Sector, Emphasizes VP Bhargav Dasgupta

Latest from Blog

Go toTop

Don't Miss

Inheritance Tax Threatens Decade of Progress, Warns Finance Minister as She Casts Vote

Union Finance Minister Nirmala Sitharaman made a significant statement after