45-Day Payment Rule for MSME

India's small businesses are facing difficulties with debt and late payments. The Union Finance Ministry is thinking about delaying Rule 43B (h) of the Income Tax Act. This rule says payments to micro, small, and medium enterprises (MSMEs) must be made within 45 days.

Reports suggest that the delay might last for a whole financial year, starting on April 1, 2025.

The Finance Act of 2023 added an amendment to the Income Tax Act, including clause (h) in Section 43B. This was to make sure MSMEs get paid on time. It sets a 45-day deadline for payments. If payments aren't made in time, pending payments are treated as income and taxed.

However, some MSMEs, especially those in the textile industry, are worried about how this new law might affect their relationships with suppliers and buyers. Many small businesses usually work on credit with their partners. Others are worried that their current systems might not be ready for this rule.

"Some problems might come up when we start using this rule, but we can fix them by talking and making changes based on feedback once implementation begins," says an industry expert.

The rule asks MSMEs to set up strong internal systems to handle invoices and make sure payments are made on time. This could take a lot of time and money, especially for smaller businesses.

"Even though there might be some problems, we can solve them. We could slowly start using this rule, giving businesses time to get used to it. We could also use technology to make it easier to follow the rules," say experts.

Industry groups have suggested making changes to the act or delaying it for a while to allow businesses to adjust. Recently, the Confederation of All India Traders (CAIT) talked to Finance Minister Nirmala Sitharaman about their concerns. Praveen Khandelwal, Secretary General of CAIT, thinks it's important to tell traders about this rule. He also thinks the rule should be delayed by a year to give traders time to understand and follow the rules.

Because there's still confusion about the rule's applicability and other relevant provisions, CAIT has suggested delaying the implementation statewide until there's enough clarification and information distribution.

Several industry professionals see implementing the 45-day payment rule as a big step forward for MSMEs, especially micro and small businesses, given India's frequent issue of late payments. Late payments happen when buyers don't pay MSMEs within 45 days.

According to a report, late payments have reached unprecedented levels, totaling 10.7 lakh crore, or nearly 7.8 percent of GDP. Implementing the rule well could solve a lot of cash flow problems for MSMEs, letting them grow, invest, and help the economy. Making the rules clear and following them strictly could also make business transactions fairer.

Experts also think technology can help. Using computers to keep track of invoices and solve payment problems online can make following the rules easier.

While businesses might have to make some changes at first, working together can solve any problems. Making sure MSMEs get paid on time will help them grow, make new things, and create more jobs. This will make the Indian market stronger and better for everyone.