09/03/2024
With no relief in sight for MSMEs, payments must be made within 45 days.
The government has decided to enforce a rule starting from April 1, 2024, with the beginning of FY25, mandating payments to micro, small, and medium enterprises (MSMEs) to be made within this timeframe. Failure to comply will result in corporations having to pay taxes on the amount due.
According to senior finance ministry officials, any changes to this rule will only be possible during the Union Budget in July. The government is not considering postponing the rule by a year, despite requests from traders.
"According to the Finance Act 2023, companies must make payments to the MSME sector within 45 days, starting from April 1, 2024. Otherwise, they cannot claim deductions," stated a senior official from the finance ministry.
The Finance Act of 2023 introduced Section 43B (h) to the Income Tax Act to ensure timely payments to MSMEs and maintain their cash flow. If a company fails to make payments within 45 days, the amount will be added to its profit and taxed accordingly.
Parliament has already approved this amendment. The new rule specifies that an employer, including a firm, can only claim a deduction for a tax, duty, cess, or charge owed to the government when it is actually paid, regardless of when it is earned or incurred.
