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.
Please advise 1st april 2024 compulsory for all invoice msme number update . provide incometax act section number
Here is the big comedy. The sufferer is MSMEs but government will levy tax and enjoy free income. So how will it help the industry
What will happen when parties delay orders , late 3 months , or send defective goods
While government has put this rule in place for private sector.
Why is this not implemented for the state & centeral government sector/psu purchase .
These are some of the biggest purchasers in the country, the red tape & corruption in these sectors is infamous.
These sectors are also not affected by this rule.
Even though the finance minister have put the order some private limited company don’t pay the payment even after 75days of time but we small msme don’t get support from financial institutions and GST department to pay monthly returns only the lord above us should help us to survive. Only the big limited company’s grow but we suffer
People still not interested to pay. They say once tax will levied we will pay to parties in next financial year.payments will go more delayed.i have outstanding from 2020 how can i get that.Best way to enhance period to 120 days and block parties gst no. Till old dues not clear and rule should be for everyone either micro. Small and big industry’s
The article need to clear that the rule is effective from Fin year 23-24 . And need to check Medium MSME. The rule said only for Micro and small Manufacturers & Service providers payments have to made in 15 days ( if no agreement) else within 45 days ( with agreement) .
Date of actual delivery is the 1st day.
Anyways pls read the rule and consult your CA for authentication.