The MSME industry was disappointed as Budget 2024-25 left the 45-day payment rule unchanged, impacting tax collections and cash flow.
Though micro, small and medium enterprises (MSMEs) are a key focus area in the Union Budget 2024-25, a section of the industry is disappointed that the 45-day tariff rule has not been revised. Companies have to pay tax on late payments.
According to sources, the provision is unchanged as it is linked to the Micro, Small and Medium Enterprises Development Act, which defines late payment as payment due for 45 days or more.
“The new Income Tax Act only confirms the provision of the MSME Development Act, which provides a 45-day time limit. Companies delaying payment can no longer claim it as an expense. Instead, they will have to pay tax on it and get a refund after payment,” a government source said, adding that any change in the 45-day income tax payment norms will depend on the change in the payment deadline of the MSME Development Act.
“The issue needs to be taken up with the MSME ministry, which can decide whether to change this period to a more convenient period – 60 days, 90 days or 120 days. Income tax rules can be changed accordingly,” the source pointed out.
Additionally, another source pointed out that the impact of the move has now been absorbed by the MSME sector and their customers, with new payment cycles being created around the 45-day rule. “The aim of this arrangement is to encourage companies to make timely payments to MSMEs and ensure that they have adequate working capital,” a second source said.
The new income tax levy, which came into effect from April 1 this year, has raised concerns among MSMEs, who fear that buyers will stop placing orders with them as payments are often extended for long periods. It is also known that many MSMEs have given up their registration to avoid this rule.
Several industry associations had raised the issue with the Finance Ministry during the interim budget in February and are hopeful that it will be addressed in the Union Budget.
The All India Merchant Mandal Federation, which had filed a petition in the Supreme Court over this provision, has expressed disappointment over the lack of a solution in the budget.
