The finance ministry is thinking about changing a new tax rule. As per this rule, businesses must pay small and medium-sized companies within 45 days.
Some businesses want this rule to start later, while others want more time to pay, they say it needs to be extended more than 45 days.
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According to a person familiar with the development, the government is looking at these requests if there are adequate reasons to change it. The new rule is supposed to start on April 1, 2024, but some want it to start on April 1, 2025.
The reasons are rising from multiple concerns. Some small companies, like those in textiles, worry this rule will affect their relationships with buyers and sellers who often work on credit. Others worry their systems aren’t ready for this change.
To encourage prompt payments to small businesses, a new clause (h) in section 43B of the I-T Act says businesses must pay small or micro businesses on time. If they pay after the stipulated time which is 45 days in section 15 of the MSME Development Act 2006 will enabled as a deduction only on actual considerations. If the payment is not carried out in the given timeline, the buyer will be subject to tax on payment.
Recently, a trade group asked the finance minister to delay this rule until everyone understands it better. They want the rule to be in effect from April 1, 2025, instead of 2024. They think this will help small businesses because they might lose business to bigger companies otherwise.