Exporters seek exemption from 45-day payment rule for supplies from MSEs

Indian exporters have urged the government to exempt them from the 45-day payment rule for goods bought from micro and small enterprises (MSEs) as it will impact their businesses.

In a letter to Prime Minister Narendra Modi, chiefs of major export promotion councils and federation of Indian export organisations have appealed to waive the export companies from section 43B(h) of the Income Tax law.The new rule, Section 43B(h) of the Income Tax Act, introduced in the Finance Act 2023, is designed to make sure small businesses get paid on time. It allows companies to get tax breaks if they pay their small business suppliers within the time limits set by the MSMED (Micro, Small and Medium Enterprises Development) Act, 2006.Especially, companies must pay within 45 days if there is an agreement, and within 15 days in the absence of such a pact. If they do not meet these deadlines, they can not deduct these expenses for tax purposes.

”Our humble request is to consider the export community separately for domestic supplies as our challenges and situations are very different. Exporters who receive supplies from micro and small units have been affected as it has impacted their liquidity,” according to the letter dated February 16.It said that for exports, payment is received with an average time lag of 120 days, although the RBI allows a nine-month period to realise export proceeds as sometimes it takes even longer.”The average lead time for an export consignment is about 90 days compared to a maximum of 14 days for domestic consignments within India.

Buyers generally pay after receiving the goods, which, with an additional 30 days, makes it 120 days for exports,” the exporting community argued. Exporters generally maintain larger inventories due to economic and demand factors in the destination market. This has increased further due to the current geopolitical uncertainties, according to the letter.”In view of this, we humbly request that in order to provide a level playing field to our exporters compared to exporters from other countries, this provision should not apply to exports. Therefore, the supply of goods from the micro and small units to exporting units, either for manufacturing of export products or for the further exports, should be exempted from this…,” it added.