The Finance Ministry is currently deliberating on potential revisions to Section 43B(h) of the Income Tax Act, which was introduced under the Finance Act of 2023. This clause, slated to take effect from April 1, 2024, stipulates that expenses to buyers on invoices from Micro and Small Enterprises (MSEs) would be disallowed unless paid within 45 days (with an agreement) or within 15 days if no agreement exists.
The government is currently assessing requests to amend the clause. The aim is to ensure that the credit cycle of MSMEs remains uninterrupted, and to provide adequate time for those unaware of the change to adjust and avoid potential liabilities.
Earlier this month, the Clothing Manufacturers Association of India (CMAI) advocated for an extension of the payment time limit from buyers to a maximum of 90 days by March 31, 2025, and subsequently to 60 days by March 31, 2026, before reducing it to 45 days by March 31, 2027. CMAI emphasized the dependence of the garment industry on intra-sector credit support due to its fragmented and informal nature.
In a letter addressed to Finance Minister Nirmala Sitharaman, the Confederation of All India Traders (CAIT) requested a postponement of the implementation of Section 43B(h) from April 1, 2024, to April 1, 2025. CAIT cited the lack of clarity surrounding the applicability of the law to traders and related provisions.
Praveen Khandelwal, Secretary General of CAIT, emphasized the necessity of raising awareness among traders regarding the new law, acknowledging its potential to streamline payment mechanisms.
According to Rajiv Chawla, Founder and Chairman of SME network IamSMEofIndia, invoices issued before April 1, 2023, and outstanding dues as of March 31, 2023, remain unaffected by the amendment. However, he clarified that payments made by March 31, 2024, would render expenses permissible, mitigating the impact of payment delays during the year or previous dues.
Chawla further explained that buyers are responsible for settling invoices by February 16th, 2024 (with a 45-day agreement), and by March 17th, 2024, if no specific agreement exists, within the fiscal year ending on March 31, 2024.
Despite concerns raised by industry bodies and traders, Chawla highlighted that the law's provisions aim to enforce timely payments and questioned worries unless there's an intent to delay payments.
Government data from the delayed payment monitoring portal, MSME Samadhaan, revealed that as of October 2017, 1.76 lakh applications have been filed by MSMEs against buyers for payment delays, involving Rs 41,105 crore. However, only 34,551 cases amounting to Rs 6,052 crore have been disposed of by the MSE Facilitation Councils in the country.
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