45-day MSME payment rule to continue, says SME Chamber of India to FM

Finance Minister Nirmala Sitharaman has been encouraged by the industry group SME Chamber of India to maintain the 45-day MSME payment norm for corporates and other purchasers. “We are pursuing not to change the 45-day MSME payment rules imposed by the Department under the pressure of corporates or multinational companies to save the life span of the MSME sector. Section 43B(h) of the Income Tax Act reinforces the importance of timely payments by mandating that companies settle payments to MSME vendors within 45 days to qualify for deductions,” SME Chamber said in a statement addressed to Sitharaman.

As per the Finance Act 2023’s introduction of Section 43B(h) of the Income Tax Act, a larger company may face greater taxes if it fails to pay an MSME within the stipulated time frame of 45 days for written agreements. This is because the firm cannot deduct the payment from its taxable income.

In the previous year’s budget, the government included a new provision under Section 43B of the Income Tax Act to tackle the issue of postponed payments that MSMEs encounter nationwide.

The industry body argued that this provision serves as a powerful incentive for companies to adhere to payment timelines, thereby supporting the financial health of MSMEs. “Many MSMEs are NPA victims of corporates, who are buying from them and not dealing through the TReDs platform. Most of the corporates and multinational companies are forcefully insisting to deregister from the Udyam Portal and insisting not to deal through the TReDs platform,” SME Chamber stated.

The industry group also asked the finance minister to take into account lending Rs 5 crore to micro and small businesses through the “Differential Rate of Interest” plan. It recommended extending the 90-day NPA definition to 180 days for the MSME industry.

The chamber also requested the creation of a task group to examine the different problems, obstacles, complaints and challenges MSMEs encounter while obtaining credit facilities, as well as the financial institutions’ lack of action to improve credit flow to the MSME sector.

(with inputs from PTI)