SECTION 43 B (H) OF INCOME TAX ACT
This provision, which aims to streamline payments to the MSMEs, will be amended from 1 April, 2024.
HOW WILL IT STREAMLINE PAYMENTS?
- Companies, Sole Proprietorships or Limited Liability Partnerships (LLP) are required to settle the payments for any goods or service purchased from any MSME (registered under MSME Development Act) within 45 days.
- There has to be a formal agreement, in absence of which, the payment has to be settled in 15 days.
Also, the buyer can claim deduction in his/her taxable income only if the payment has been settled.
BENEFITS
- It is beneficial for MSME’s sustainability & growth as it resolves the cash crunch problem.
- It ensures better bargaining power for the MSMEs during any deal.
- The disputes will be reduced.
- Tax planning can be streamlined.
CONCERNS
Traders’s body have appealed to the Finance Minister to implement this clause from 2025 onwards as the Indian market largely operates on Credit.
How much is the credit cycle?
90-120 days. It gets extended to 180 days also.
Hence the expectation from the trader to adjust its cycle to 45 days immediately is of concern.
- Hence the new rule has led the retailers to cancel orders they had placed with MSMEs & have turned towards non MSME players.
- Return of unsold articles to the MSMEs is also getting witnessed.
