Minister of Union Finance Nirmala Sitharaman
On May 28, Finance Minister Nirmala Sitharaman made a suggestion that the government may review modifications to the income tax regulations that require payments to micro, small, and medium-sized enterprises (MSMEs) within 45 days, failing which the companies will be required to pay tax on the outstanding amount.
On April 1, 2024, this mandate went into force.
MSMEs are encouraged to submit representations on the same, she said, adding that the government will “surely do something about it in the July Budget.”
Speaking at a gathering in Ludhiana, Punjab, Sitharaman stated that MSMEs themselves requested the modifications requiring the 45-day payment window to be implemented.
“The income tax Act was changed in 2023, not this year. However, if you would like to amend it, something can be done based on the suggestions made when the new administration presents its budget in July. However, we modified the Income Tax Act in response to pleas from MSMEs. Payment was requested, but it wasn’t received for 45 days. However, it becomes simpler to amend the rule and return to the previous one if MSMEs disagree with it, the speaker added.
A clause (h) was added to Section 43B of the Income Tax Act 2023 to update the regulations. This effectively prevents firms from claiming tax deductions for payments made to MSMEs for goods and services that are received after 45 days.
The purpose of this was to encourage larger companies to give priority to their settlements with their MSME counterparts, which would enable smaller companies weather any financial storm.
The finance minister’s suggestion that the 45-day payment requirement for MSMEs should be loosened after reports from stakeholders that the mandate’s harshness and ambiguity could cause commerce and established business practices to be disrupted.
Sitharaman also made it clear that MSMEs will still be eligible for tax breaks.
Although businesses run the danger of losing out on deductions and tax benefits in a given fiscal year if payments are not made within the allotted 45 days.