CAIT seeks 1 year delay in implementation of new MSME payment rule

MSMEs face mounting challenges due to delayed payments from both public and private entities.

The new rule of timely payment to MSMEs within 45 days should be postponed by a year or suspended till sufficient clarity is brought to the companies, Confederation of All India Traders (CAIT) said in its representation to the Finance Ministry.

“The new provision in the Income Tax Act aims to enhance financial liquidity for micro and small enterprises (MSMEs). However, there is a need for greater awareness among traders about this beneficial provision and propose a one-year postponement of its implementation. This delay, would allow traders ample time to understand and comply with the law smoothly,” CAIT Secretary General Praveen Khandelwal said in a statement.

CAIT has sought postponement of the implementation of this law from April 1, 2024 to April 1, 2025, to provide traders with a one-year deferral period. The trade body met Finance Minister Nirmala Sitharaman on February 14 to put forward its concern, it said.

According to the Income Tax Law 43B (h) in the Finance Act 2023, in order to ensure timely payments and maintain uninterrupted cash flow, the companies need to make payments to the MSME sector within 45 days. If the companies fail to do so, the amount will be added to their profits on which income tax will have to be paid.

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.

MSMEs face mounting challenges due to delayed payments from both public and private entities. Small businesses, often operating on tight margins, find themselves in precarious positions as payment delays disrupt cash flow and hinder operational capabilities. From manufacturers to service providers, the ripple effects of delayed payments are felt throughout the MSME ecosystem. The new income tax amendment aims at addressing the issue.

Initiatives such as the TReDS (Trade Receivables Discounting System) platform aim to facilitate faster invoice discounting and improve liquidity for MSMEs. Additionally, the implementation of the MSME Samadhaan portal provides a platform for enterprises to expedite the resolution of delayed payment disputes.