FM Nirmala Sitharaman said the changes, if any, to the rule will have to be done in the full budget in July under the new government as per the representations submitted by MSMEs.
Finance Minister Nirmala Sitharaman said on Tuesday that the government will repeal the changes made to Section 43B of the Income Tax Act if MSMEs want to continue operating with uncertainty on payment timelines from their buyers.
Interacting with MSMEs and local industries in Ludhiana, Sitharaman said the government added the 45-day payment rule effective since 2008 to the Income Tax Act on the request of MSMEs facing delays in payment from their buyers beyond 45 days.
“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 said.
The government in last year’s budget had proposed to add a new clause h under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country, hindering the flow of working capital and overall business growth.
The clause (h), which came into effect on April 1, 2024, with 2024-25 as the assessment year (that is financial year 2023-24), allows expenses to buyers on invoices from micro and small enterprises only if paid within 45 days (where agreement exists) and within 15 days if there is no agreement in the year of actual payment instead of the year when it was incurred as an expense.
Sitharaman said the changes, if any, to the rule will have to be done in the full budget in July under the new government as per the representations submitted by MSMEs.
“The change in Income Tax Act was done based on the request of MSMEs that since payments were not being made under 45 days, relief in Income Tax should be given (to buyers) for the year when the payment is made to them,” said Sitharaman.
Certain sections of MSMEs including those part of the Clothing Manufacturers Association of India (CMAI) believed that the new clause is damaging to their working capital flow as the payment cycle between them and their buyers runs beyond 45 days, even up to six months. Hence, the changes made to the IT Act forcing them to pay within 45 days would result in business loss for MSMEs as buyers would prefer sellers outside the ambit of the MSME definition.
Moreover, traders also under the Federation of All India Vyapar Mandal (FAIVM) along with associations in Chennai and West Bengal, have been urging for repealing the changes made to the law. Traders are currently restricted to the benefit of priority sector lending under the MSME definition and hence, there is no mandate for their buyers to pay them in 45 days and be eligible for tax benefits.
“This means while we continue to make payments to our MSE sellers on time, the payment cycle with our buyers is often of more than 45 days and hence we are stuck this way leading to working capital issues. How would we pay MSEs on time when there is no fixed timeline for our payments from our buyers?” Jayendra Tanna, President, FAIVM had told FE Aspire recently.
As of May 29, 1.91 lakh delayed payment applications have been filed by MSMEs since October 2017 involving Rs 43,532 crore, of which only 36,593 cases involving Rs 6,287 crore were disposed, according to the data from the delayed payment monitoring portal MSME Samadhaan of the MSME Ministry.
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