Government Considers Easing Payment Norms to Aid MSMEs
Reports suggest that the government is reviewing the 45-day payment requirement for purchases from micro, small, and medium enterprises (MSMEs) in a bid to prevent major corporations from seeking alternative sourcing options. It is anticipated that an announcement regarding this matter may be made during the upcoming Budget presentation scheduled for July 23.
Sources indicate that the government is mulling over proposed modifications to Section 43B(h) of the Income Tax Act, following inputs provided by MSMEs during pre-Budget consultations. Notably, the addition of a new clause under Section 43B of the Income Tax Act in last year’s Budget aimed to address the issue of delayed payments encountered by MSMEs in the country.
Introduced through the Finance Act 2023, Section 43B(h) stipulates that failure by a larger company to make timely payments to an MSME, as per written agreements, would disallow the deduction of that expense from its taxable income. This could potentially result in higher taxes for the company in question.
Concerns have been raised within the MSME community regarding the potential repercussions of this provision. There are apprehensions that substantial buyers might choose to overlook MSME suppliers and instead procure goods and services from unregistered or non-MSME entities. It is noted that while the amendment was introduced to ensure prompt payment for MSMEs, fears persist that large corporations may opt to source from larger firms or pressure their vendors to relinquish their MSME registration to continue business partnerships.
Earlier statements by Finance Minister Nirmala Sitharaman suggested that any changes to the rule would be considered as part of the full Budget in July, in response to representations submitted by MSMEs.
The MSME sector plays a significant role in the country’s economy, contributing 30% to the gross domestic product (GDP) and representing the second largest employer after agriculture. Additionally, products specified for MSMEs account for 45.56% of the nation’s total exports.