MSME 45-DAY PAYMENT RULE: PROPOSED CHANGES CAUSES

RIFTS AMONG MSMES STAKEHOLDERS

The Union Finance Ministry is allegedly considering delaying the implementation of Rule
43B (h), which requires payments to MSMEs within 45 days.

45-Day Payment Rule for MSME

Reetu | Mar 19, 2024 |

MSME 45-Day Payment Rule: Proposed Changes causes Rifts among MSMEs
Stakeholders

As India’s small businesses continue to struggle with debt and late payments, the Union
Finance Ministry is allegedly considering delaying the implementation of Rule 43B (h) of the
Income Tax Act, which requires payments to micro, small, and medium enterprises
(MSMEs) within 45 days.

According to media reports, the proposed postponement will likely last a whole financial
year, with the rule scheduled to go into force on April 1, 2025.

The Finance Act of 2023 introduced an amendment to the Income Tax Act that included
clause (h) in Section 43B to ensure that MSMEs receive timely payments. The new rule set
a 45-day deadline for the assessee to make payments. Failure to comply with this timeline
would result in pending payments being treated as income and subjected to taxation.

However, the issue stems from a variety of circumstances. Certain MSMEs, notably those
in the textile industry, are concerned that the adoption of this new law may harm their
connections with suppliers and purchasers, who commonly work on credit with these
small businesses. Others express concern that their present systems may not be fully
prepared to handle this provision.

“There could be challenges in implementation and it can be solved through consultations,

convenings and improvisation over a period basis the feedback once the implementation
starts,” an expert within the industry stated.

The rule requires MSMEs to set up solid internal systems to manage invoices and assure
timely payments, which might be time-consuming and expensive, particularly for smaller
businesses.

“Despite these obstacles, I believe there is an opportunity to reverse the odds and
streamline delayed payment concerns. A phased implementation of the rule, which allows
firms time to adapt, might smooth the transition and reduce disruptions. Using technology
to simplify compliance and improve payment procedures may also help to alleviate the
load”, according to industry experts.

Industry bodies, in their proposals to the finance ministry, have suggested potential
modifications to the act or a temporary postponement to allow businesses time to adjust.
Recently, the Confederation of All India Traders (CAIT), to address concerns regarding
Income Tax Law 43(B)H among traders, talked to Finance Minister Nirmala Sitharaman.

Praveen Khandelwal, Secretary General of CAIT, stressed the importance of raising

trader’s awareness of this beneficial offer and advocated delaying its implementation by
one year. He stated that the delay would give traders enough time to understand and
comply with the regulations.

Given the lack of clarity around the law’s applicability to traders and other relevant
provisions, CAIT has advocated for a statewide delay of implementation until sufficient
clarification and information distribution are achieved.

Several industry professionals have stated that the implementation of the 45-day payment
rule is a significant step forward for MSMEs, particularly micro and small businesses, given
India’s frequent issue of late payments. Legally, delayed payments arise when buyers
extend payment terms to MSE suppliers beyond 45 days.
 According to a report, delayed payments have reached unprecedented levels, totalling
10.7 lakh crore, or nearly 7.8 percent of GDP. Effective implementation of the rule has the
potential to dramatically reduce MSMEs’ cash flow issues, allowing them to invest,expand,
and contribute more to the economy. Furthermore, increased clarity and severe
enforcement can promote transparency and accountability in business transactions,
resulting in a more equitable economy.

According to the experts, technology can also play an important role in streamlining
payment procedures and guaranteeing regulatory compliance. Automated invoice
monitoring, online dispute resolution procedures, and digital payment platforms provide
efficient means of compliance and settlement.

While there may be some initial adjustments as businesses adjust to tighter deadlines,
believe in collaborative approach may close any gaps. Working together, we can ensure a
smooth transition and maximise the potential of this powerful legislation. Timely payments
will enable MSMEs to develop, innovate, and create jobs, resulting in a more robust and
inclusive Indian market.