Finance Ministry May Tweak 45 Days Payment Rule for MSMEs

The government is actively reviewing the concerns of stakeholders and assessing whether there are valid grounds for amendments to this 45-days payment rule for MSMEs.

The Union Finance Ministry is contemplating a revision to a recent tax regulation requiring businesses to settle payments to small and medium-sized enterprises (MSMEs) within 45 days.

This follows a growing chorus among trade associations for a later initiation of this rule or an extension of the payment period beyond the existing 45 days.

The new rule is slated to take effect on April 1, 2024 and those advocating for a change say that more time is needed for payments to be made smoothly and have proposed a deferment to April 1, 2025.

MSMEs, particularly in the textile and apparel sectors fear that the regulation could strain their relationships with buyers and sellers who often operate on credit terms.

Additionally, there are apprehensions about the readiness of systems to adapt to this new requirement.

In a bid to incentivise timely payments to small businesses, a new clause (h) in section 43B of the Income Tax Act mandates that businesses settle dues with MSMEs promptly.

Any payment made beyond the stipulated period of 45 days, will only qualify for deduction upon actual payment. Failure to comply within the specified time frame could subject the buyer to taxation on the payment.