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Govt expected to relax 45-day payment rule for MSMEs in upcoming Budget
Industry News- Jul 12,24
MSMEs have raised concerns that this provision could lead large buyers to avoid MSME suppliers, opting instead for non-MSMEs or those not registered with Udyam.
The government is considering relaxing the 45-day payment requirement for Micro, Small, and Medium Enterprises (MSMEs) to prevent large corporations from seeking alternative sourcing options, according to sources. This announcement is expected to be made in the Budget, likely to be presented on July 23.
The proposed relaxation is in response to suggestions made by MSMEs during pre-Budget consultations, particularly concerning Section 43B(h) of the Income Tax Act, sources said. Last year's Budget introduced this section through the Finance Act 2023 to address delayed payments to MSMEs. The current provision mandates that if a larger company fails to pay an MSME within 45 days, it cannot deduct that expense from its taxable income, potentially leading to higher taxes.
MSMEs have raised concerns that this provision could lead large buyers to avoid MSME suppliers, opting instead for non-MSMEs or those not registered with Udyam. Although the amendment aimed to ensure timely payments to MSMEs, there is fear that large corporations might shift their sourcing requirements to bigger firms or ask vendors to forgo their MSME registration to continue doing business.
In May, Finance Minister Nirmala Sitharaman acknowledged these concerns and indicated that any changes to the rule would need to be addressed in the full Budget in July under the new government.
The MSME sector plays a vital role in the Indian economy, accounting for 30% of the country's gross domestic product (GDP) and serving as the second-largest employer after agriculture. Additionally, products specified for MSMEs make up 45.56% of the country's total exports.
(Source: Deccan Herald & PTI)
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