The government of India in a measure to support the financial health of micro, small, and medium enterprises (MSMEs) in India, announced the enactment of a strict rule requiring payments to MSMEs to be settled within 45 days. Tax penalties on the due amount shall be levied if companies fail to follow the said rule.
As per two senior finance ministry officials, any revision to such a rule can only happen at the time of the Union Budget in July, highlighting the government’s firm stance on the case. Section 43B (h) in the Income Tax Act introduced by the Finance Act 2023, mandates timely payments to MSMEs to sustain uninterrupted cash flow and strengthen economic sustainability.
One senior finance ministry official mentioned that “Companies need to make payments to the MSME sector within 45 days, as per the Finance Act 2023, effective from April 1, 2024. Failure to adhere to this timeline will render companies ineligible to claim deductions, with the overdue amount subjected to taxation.”
Parliament had already approved the amendment showing an important transference in tax compliance norms, dictating that deductions for tax, duty, cess, or fees liable to be paid to the government can just be claimed on the actual payment, no matter when they were accrued or incurred.
Explaining the cause for the revision, a second finance ministry official stressed its role in ensuring prompt tax compliance, declaring, “The provision underscores the imperative for businesses to fulfil their tax obligations promptly, discouraging the practice of indefinitely deferring payments for tax benefits.”
Measures to postpone or change the rule prior next budget session in July are considered inappropriate since any revision should experience parliamentary scrutiny and approval. The Confederation of All India Traders (CAIT) urged a one-year postponement of the rule, quoting ambiguities and demanding attention among traders all across the country.
MSMEs have struggled with late payments from both public and private entities, resulting in challenges to their functional viability. The importance of timely payments is been stressed by Finance Minister Nirmala Sitharaman specifically during the rise of the pandemic, highlighting the commitment of the government to assist the MSMEs.
Diverse opinions for the amendment have been expressed by the Industry stakeholders. Considering its impact on business functioning, some regard it as a measure to strengthen MSMEs’ financial stability. Others highlight the demand for improved access to finance for buyers to promote timely payments to MSME suppliers.
The government to handle payment delays, has executed efforts like the Trade Receivables Discounting System (TReDS), easing prompt receivables for MSMEs by enabling the discounting of their invoices. The TReDS platform acts as a critical process for MSMEs to access timely funds, assuring their constant growth and viability in the evolving market trend.
Your article.is misleading.The amendment is applicable for assessment years beginning 1st April 2024 meaning financial year 2023-2024.Please correct.
Your headline is misleading. It is not the MSMEs but the clients of MSMEs have to follow the new rules.
The problem which is arising now is some Retailers are asking to withdraw from MSME or they will not do any business from us i.e. those having MSME.
This 45 day payment schedule should be levied on everyone whether it be in MSME or not.
Because some of them are saying to make a new business firm without MSME registration and supply goods from that firm.
Instead of getting timely payment we are losing orders..
What should we do?
Whoever made this rule has very clearly shifted business from smes to large scale units.
Only large scale units can offer credit and they have qty purchase and also access to cheap public funds
Follow the most bizzare FM who doesn’t eat onions but can pass the union’s budget without thinking the ways India functions..
Meme 2025 new notification
We are also on of msme unite some traders who are not paying us our dues in time to us how can we rotate our funds to pay with in 45 days to msmes.
Hi,
Rajendra ji,
I am facing the same issue, what i think is we should not worry this is the best decision for future. Traders or any other big or small companies who are not paying will be eliminated in coming time and we will have a clear vision to whom we should work with in near future. Although it will certainly creates a huge pressure on profit margin due to fast payment cycle so we should be much focused on how to reduce our manufacturing or purchasing cost in near time.
Consider invoice factoring, where you sell your accounts receivable to a third party at a discount. This provides you with immediate cash but comes at a cost.
Iam facing the same issue company not paid 12 months outstanding bills
We are very difficult to handal the issue
Thanks to govt
What is the use if this act?
Who is it going to benefit?!
The small manufactures are losing their customers and the traders are under debt as they are not receiving money from the retailers but are told to pay with a limited time
For whom is this law made?
What good is it going to do!?
Why are the people above 50 ve turnover not included?
This is act is just helping the rich get richer and the poor get poorer!
It should be withdrawn
Don’t Worry , now own words they will pay you within 45 days so that you will be able to pay others within 45 days , send them your udyam certificate with bill.
I have opened my cloth store in2019, and faced lock-down for 4 months and pay huge salaries to our staff and after 2 year , our creditors settled within 6-7 months and with a credit limit of 1 crore. . Fm. Mam please tell how can I pay
Same problem faced by lakhs of traders. Be open to new reality and restart.