The Micro, Small and Medium Enterprise Development (MSMED) Act, 2006, which contains provisions of delayed payment to micro and small enterprises (MSEs), should also include medium-sized enterprises, said industry body PHD Chamber of Commerce and Industry (PHDCCI) in its pre-budget memorandum.
Currently, the MSMED Act allows only MSEs to submit applications to MSE Facilitation Councils against their buyers for delay in clearing their dues beyond the specified payment date.
“It is, therefore, necessary that the medium industry should be included under the Micro and Small Enterprises Facilitation Councils for settlement of delayed payments from the buyers with the provision of payments within a maximum of 45 days if there is no specified payment date in the purchase order,” PHDCCI said in its memorandum.
Importantly, the government in April this year had also added a new clause h under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country, hindering the flow of working capital and overall business growth.
The clause (h), which came into effect on April 1, 2024, with 2024-25 as the assessment year (that is financial year 2023-24), allows expenses to buyers on invoices from micro and small enterprises only if paid within 45 days (where agreement exists) and within 15 days if there is no agreement in the year of actual payment instead of the year when it was incurred as an expense.
The government in July this year had also revised the MSME Return form or MSME-1 form, which tracks the amount unpaid by companies for more than 45 days, seeking additional details such as the amount paid within 45 days through the invoice discounting platform TReDS or other payment mode, amount paid after 45 days, amount outstanding for 45 days or less and amount outstanding for over 45 days other than the reason for the delay in payment or outstanding amount and name and PAN of the MSE supplier.
The half-yearly form is required to be filed by buyers by October 31 for the April to September period and again by April 30 for the period October to March every year.
As per the government’s Samadhaan portal, 2.15 lakh applications involving Rs 47,579 crore stuck have been filed so far since October 2017, of which only 43,501 applications involving Rs 7,095 crore have been disposed by the facilitation councils.
Meanwhile, PHDCCI also urged the government to extend the NPA (non-performing asset) classification period to 180 days from 90 days for MSMEs. According to the mandate by the Reserve Bank of India (RBI), loans can be classified as NPAs if they are overdue by more than 90 days.
“This should be increased to 180 days so that MSMEs are not constrained to divert their working capital towards servicing of their loan-instalments and clearing of their over dues at the cost of their normal business operations,” the chamber said.
Among other suggestions by PHDCCI in its pre-budget memorandum for the MSME sector were extending the Interest Equalization Scheme on Pre and Post Shipment Export Credit to MSME services exporters as well as bringing back the 2 per cent interest subvention scheme on new or incremental loans.
It also suggested treating the bank credit to NBFCs for on-lending to MSMEs as indirect finance to MSMEs eligible for classification under the priority sector lending.