It is anticipated that the government will revise Section 43B of the Income Tax Act, which was modified by the Finance Act of 2023 to add Clause (h). This amendment was made. The purpose of this action was to find a solution to the issue of delayed payments that micro, small, and medium-sized businesses (MSMEs) face from their customers. The clause, which is planned to go into effect on April 1, 2024, prevents purchasers from deducting expenses on invoices from micro and small firms (SMEs) unless the bills are paid within 45 days (in cases where an agreement is in place) or within 15 days (in cases where there is no agreement). This section is scheduled to take effect.
“The government is considering the request to see if there is any scope of the amendment to the clause so that the credit cycle of MSMEs is not disturbed and those who are not aware of the change get ample time to avoid any probability of liabilities,” an individual with knowledge of the matter told FE Aspire. “The clause includes provisions that allow for the possibility of the amendment.”
The Clothing Manufacturers Association of India (CMAI), which is the industry body for clothing manufacturers, had requested earlier this month that the government extend the time limit for receiving payments from buyers to a maximum period of 90 days by March 31, 2025, and 60 days by March 31, 2026, before reducing it to 45 days by March 31, 2027. This request was made to increase the maximum period that the government could allow for receiving payments from buyers. This request was submitted to persuade the government to extend the time limit that was previously in place.
It is particularly dependent on the intra-sector financial support that is provided among its players because the clothes business is exceedingly fragmented and informal. This presents a significant challenge for the industry. Additionally, the garment sector does not have access to the loan facilities that are provided by institutional financial organizations thus it cannot take advantage of these opportunities. According to a statement released by the Loan Management Association of India (CMAI), the normal loan duration utilized in the industry is from ninety to one hundred and twenty days, and it regularly goes to one hundred and eighty days.
In a letter that was delivered to Nirmala Sitharaman, the Minister of Finance, on February 10, the Traders' Association of India (CAIT) also requested the suspension of the implementation of clause (h). According to a statement that was included in the letter, it was said that “given the lack of clarity surrounding the applicability of the law to traders and other related provisions,” the letter stated.
The Corporation for the Advancement of Information Technology (CAIT) submitted a request to the government to postpone the implementation from April 1, 2024, to April 1, 2025, to grant traders a one-year deferral period.
By the criteria that have been established by the government, the only retail and wholesale merchants who are qualified to get priority sector loan privileges are those who have registered with the Ministry of Small and Medium Enterprises (MSME) through the Udyam site.
In a conversation with FE Aspire, Praveen Khandelwal, Secretary General of the CAIT, provided the following statement: “The law is good and will streamline the payment mechanism; however, the awareness among traders is not there.”
According to Rajiv Chawla, the creator, and chairman of the small and medium enterprise (SME) network IamSMEofIndia, the modification would not have any effect on invoices that were issued before April 1, 2023, nor will it have any effect on dues that were outstanding as of March 31, 2023. Additionally, payment delays to micro, small, and medium businesses (MSEs) during the fiscal year would not be subject to any checks or consequences if the payments are paid by March 31, 2024. This is the deadline for the payments to be settled.
This indicates that the expense will be allowed if it is paid on March 31, 2024 (after a full year has passed) for an invoice that was issued on April 1, 2023. According to what he suggested, as a consequence, there will be a small effect on payment delays within the year or delays in settling earlier dues than there would have been otherwise.
Furthermore, according to Chawla, it is the responsibility of the buyer to clear all invoices as of the 16th of February, 24 (in situations where a 45-day agreement is in place) and invoices as of the 17th of March, 24 (in the absence of a special agreement) during the term of the fiscal year, which will end on March 31, 2024. This obligation is in place during the period that the fiscal year remains in effect.
As a further point of interest, he made the following statement: “So where is the worry, unless someone has no intention of paying for purchases during this fiscal year?”
According to the delayed payment monitoring platform that was supplied by the government MSME Samadhaan and launched in October of 2017, around 1.76 lakh applications have been submitted by micro, small, and medium-sized companies (MSMEs) against their customers for delaying payments. These applications have been filed against their purchases. This resulted in a total of 41,105 crore being held up for such micro, small, and medium-sized firms (MSMEs). However, the MSE Facilitation Councils across the country have only addressed 34,551 cases, which represents a total of 6,052 crore so far about these MSMEs.