Industry ‘positive’ on 45-day payment rule

The Ministry of Micro, Small and Medium Enterprises (MSME) has received “positive” feedback from industry regarding the 45-day payments cycle for MSMEs.

The comment assumes significance amid concerns raised by some MSMEs that big companies may stop buying from small and medium suppliers and instead choose to make purchases from unregistered enterprises. This was because a failure to adhere to the timeline would attract penalties, and buyers would be unable to deduct the payments made to MSMEs from their taxable income.

In FY2023 Budget, the government introduced Clause (h) under the Section 43B of the Income Tax Act to tackle the issue of delayed payments faced by MSMEs, negatively affecting their working capital and business growth.

Effective from April 1, 2024, for the assessment year 2024-25 (i.e., financial year 2023-24), clause (h) stipulates that expenses for buyers on invoices from micro and small enterprises can only be claimed if paid within 45 days where an agreement exists, and within 15 days if there is no agreement.

Many Industrialists opined that this rule fosters financial discipline among buyers and safeguards SMpEs from payment delays. Strengthening it further will ensure adherence over time and the 45-day payment rule may transform a lifeline for new entrepreneurs without established client relationships.

Sometimes customers don’t pay timely, regardless of repeated requests from the manufacturer. This rule prevents manufacturers from such tricky situation.

However, the implementation of this legislative change has thrown up several issues to be resolved, as payers are subject to various commercial aspects in addition to ensuring MSME eligibility, such as performance based retentions and provisional year-end accruals/expense bookings.

 👇 Please Note 👇

Thank you for reading our article!

If you don’t received industries updates, News & our daily articles

please Whatsapp your Wapp No. or V Card on 8278298592, your number will be added in our broadcasting list.