SC refuses to entertain plea by Vyapar Mandal against 45 days pay rule under income tax law

MSMEs get no relief from SC

The Supreme Court on May 6 refused to entertain a plea by Federation of All India Vyapar Mandal challenging the constitutional validity of section 43 B (H) of the Income Tax Act.

According to Section 43B(h) of the Income Tax Act, introduced through Finance Act 2023, if a larger company does not pay an MSME on time — within 45 days in case of written agreements — it cannot deduct that expense from its taxable income, leading to potentially higher taxes. The section came into effect on April 1, 2024.

The apex court asked the Micro Small Medium Enterprises (MSMEs), which are a part of the Vyapar Mandal to approach the high courts should they need any relief.

All India Vyapar Mandal Union filed the writ petition before SC, challenging the constitutional validity of Section 43B(h) on the ground that it violated the fundamental rights of its members across India. The plea also sought for an interim stay on the implementation and operation of the section till SC passed a judgment in the issue.

Some industry bodies have urged the government to postpone implementation of the new payment rules, and the Federation of Indian Micro and Small & Medium Enterprises (FISME) is of the opinion that the new rule has the potential to be a game-changer for MSMEs.

MSMEs fear that due to this provision, large buyers could cold-shoulder MSME suppliers and start buying either from those MSMEs that are not registered with Udyam or from non-MSMEs. Acknowledging that Section 43B(h) has caused some apprehensions among both MSMEs and larger businesses, FISME said, ”such fears are unfounded”.

In February, representatives of the traders’ body CAIT called upon Finance Minister Nirmala Sitharaman and demanded that the implementation of the clause in the Income Tax Act be deferred by a year to April 2025. In its memorandum to the finance ministry, CAIT had welcomed the government’s decision, highlighting the significance of ensuring timely payments to the MSME sector within 45 days to maintain uninterrupted cash flow for traders.

However, given the "lack of clarity" surrounding the applicability of the law to traders and other related provisions, it had urged the government to suspend the implementation of the clause until sufficient clarification and information dissemination are achieved nationwide