Budget 2024: The government may relax the mandatory requirement to pay MSMEs within 45 days of purchasing goods and services to prevent large corporations from exploring alternative sourcing avenues, according to the news agency PTI sources. An official announcement in this regard is expected during the Budget presentation scheduled for July 23.
Changes expected in section 43B (H) of Income Tax Act
Sources said that during the pre-budget deliberations, the government is considering the suggestions given by micro, small and medium enterprises (MSMEs) regarding changes in section 43B (H) of the Income Tax Act.
The government in last year's Budget added a new clause under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country.
According to Section 43B(h) of the Income Tax Act, introduced through the 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.
Fear of MSMEs
MSMEs are concerned that this provision could result in larger buyers bypassing MSME suppliers registered under Udyam, opting instead to purchase from MSMEs not registered or from non-MSME entities.
The amendment was introduced to ensure MSMEs receive timely payments, but concerns have been raised by sources indicating fears among MSMEs. They worry that large corporations, in an effort to protect their interests, may shift their sourcing needs to larger firms or pressure their vendors to relinquish their MSME registration to continue doing business with them.
In May, Finance Minister Nirmala Sitharaman had said that any changes to the rule would need to be addressed in the full Budget scheduled for July under the new government, responding to representations from MSMEs.
The MSME sector contributes 30 per cent to the country's gross domestic product (GDP) and is the second-largest employer after agriculture. Exports from products specified for MSMEs accounted for 45.56 per cent of the country's total exports.
(With PTI inputs)
