Amid the constant delayed payments and massive debt faced by India’s micro, small and medium enterprises (MSMEs), the Income Tax (IT) rule prohibiting businesses from claiming tax deductions for payments beyond 45 days to small businesses for the supply of goods and services will be enforced from Monday (1 April).
As per Section 43B(h) of the Income Tax Act, which was introduced through the Finance Act of 2023, if a larger company fails to make timely payments to an MSME—within 45 days as stipulated in written agreements—it will not be able to deduct that expense from its taxable income. Notably, this could result in potentially higher taxes for the company.
However, the concern arises from several factors. Certain MSMEs, particularly those in the textile industry, fear that the implementation of this new rule could affect their relationships with suppliers and buyers, who frequently operate on a credit basis with these small enterprises. Additionally, others express apprehension that their existing systems may not be adequately prepared to accommodate this provision.
Industry bodies, in their proposals to the finance ministry, have suggested potential modifications to the act or a temporary postponement to allow businesses time to adjust. Recently, the Confederation of All India Traders (CAIT), to address concerns regarding Income Tax Law 43(B)H among traders, talked to Finance Minister Nirmala Sitharaman.
Praveen Khandelwal, Secretary General, CAIT emphasised the need for greater awareness among traders about this beneficial provision and proposed a one-year postponement of its implementation. This delay, he argued, would allow traders ample time to understand and comply with the law smoothly.
Given the lack of clarity surrounding the applicability of the law to traders and other related provisions, CAIT called for the suspension of its implementation until sufficient clarification and information dissemination are achieved nationwide.
Meanwhile, according to a report by the GAME, delayed payments have surged to unprecedented levels, amounting to 10.7 lakh crore, approximately 7.8 per cent of the gross domestic product (GDP).
Community Manager.