In the fiscal year 2025, the government plans to implement a regulation requiring payments to micro, small, and medium enterprises (MSMEs) to be settled within 45 days. Failure to comply will result in companies being liable to pay taxes on the outstanding amount, according to two senior finance ministry officials.
Amendments to this rule can only be considered during the Union Budget session in July, as outlined by the officials. Despite requests from traders for a one-year deferment, the government is not inclined to postpone the rule, they stated.
“As per the Finance Act 2023, companies are mandated to clear payments to the MSME sector within 45 days, effective from April 1, 2024, failing which deductions cannot be claimed,” explained a senior finance ministry official.
Introduced under Section 43B (h) of the Income Tax Act by the Finance Act 2023, this provision aims to ensure timely payments to MSMEs and maintain a steady cash flow. It stipulates that any overdue payment beyond 45 days will be added to the company’s profits, subjecting them to taxation.
Parliament has already approved this amendment, emphasizing the need for businesses to promptly fulfill their tax obligations rather than indefinitely deferring payments for tax benefits.
The Confederation of All India Traders (CAIT) had advocated for a one-year postponement, citing ambiguity surrounding the rule. Praveen Khandelwal, CAIT’s secretary-general, stressed the necessity for greater awareness among traders nationwide regarding this provision.
Delayed payments pose significant challenges to MSMEs, affecting their operational capabilities and cash flow. To address this issue, Finance Minister Nirmala Sitharaman has repeatedly urged businesses to ensure timely payments.
Ashok Saigal, co-chairman of the Confederation of Indian Industry MSME Council, endorsed the enforcement of the new rule, emphasizing its importance in ensuring timely payments to MSMEs. He highlighted the need for businesses to manage their finances effectively to meet these payment deadlines.
Furthermore, the government has introduced initiatives such as the Trade Receivables Discounting System (TReDS) to facilitate prompt payments to MSMEs by allowing the discounting of their invoices. Through the TReDS platform, MSMEs can avail themselves of competitive market rates and expedite their receivables from large companies and government entities.
