In anticipation of the impending General Election for the 18th Lok Sabha in India scheduled for April and May, the reassessment of the MSME Payment Rule appears unlikely before the election notification. The amendment, introduced through the Finance Act 2023 to compel timely payments to micro and small enterprises ( MSMEs ), may face challenges in revision before the upcoming full union budget after elections.
The revised rule mandates that large enterprises settle payments to MSMEs within 45 days of receiving goods or services. In the absence of a written agreement, the payment window shortens to 15 days. Notably, Clause 43B(h) restricts expenses for buyers on MSME invoices unless settled within the stipulated 45-day period, if an agreement is in place.
The Election Commission of India ( ECI ), slated to announce the Lok Sabha elections’ schedule after March 13, is actively evaluating states’ election preparedness. The commission’s groundwork is expected to conclude by March 13.
Amidst these developments, certain traders, such as those in the chemical sector, are adopting distinctive strategies to comply with the MSME Payment Rule. Notably, some buyers have opted to abstain from purchasing goods before February 16 to ensure that payment deadlines extend beyond March 31. The textile value chain, operating on a credit period of up to 120 days, is notably impacted by this regulation.
Contrary to expectations, there is no anticipation of an extension to the MSME 45 days payment criteria. The Finance Act 2023’s insertion of Clause 43B(h) in Section 43B of the Income Tax Act aimed to facilitate payments to MSMEs within the prescribed timeframe.
Various organizations and businesses are now urging a deferment of this clause. However, government sources indicate that no proposals for this amendment were put forth before the Interim Budget 2024, the last opportunity for changes. With elections looming, the government clarifies limited options for adjustments, emphasizing that any amendments can only be considered in the budget post the elections.
Adding to the discourse, the Federation of Chambers of Industries Kashmir ( FCIK ) advocated for the postponement of recently enacted rules under Section 43B of the Income Tax Act.
FCIK emphasized the necessity for comprehensive discussions with stakeholders to assess the pros and cons before the rules are implemented, acknowledging their objective to ensure timely payments and enhance MSME liquidity.
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