Budget 2024 skips review of the 45-day payment rule for MSMEs

Union Budget 2024: Even as the Union Budget 2024-25 announced a slew of measures aimed at boosting micro, small and medium enterprises, it gave a miss to an expected review of the new rule that mandates payments to these businesses within 45 days of receiving the good or service.

This means that the new rule will continue and buyers from MSMEs would have to make payments to them within 45 days or pay tax on the amount.

Several MSME associations had appealed to the Finance Ministry to review this 45-day payment rule due to concerns over cancellation of contracts by their buyers and suppliers who would have to pay tax on the delayed payment. The new clause came into effect from April 1 and it was expected that it may be reviewed in the Union Budget with either a deferment of the rule or an increase in the time limit for the payment.

However, a proposal to this effect did not feature in the announcements by Union Finance Minister Nirmala Sitharaman. A closer reading of the Budget documents also did not find any such proposal.

Mayank Arora, Director, Regulatory, Nangia & Co LLP said that the industry was anticipating repeal of Section 43B(h) of the Income Tax Act, 1961; however, the Finance Bill is silent on the same indicating continuation of disallowance of deduction in case payments are not made to MSME vendors within 45 days as provisions of the MSME Act, 2006.  “This would discourage corporates from having MSME vendors and flies in the face of other enabling provisions for MSMEs announced by the finance minister,” he noted.

In line with the new 45-day payment rule, the ministry of corporate affairs also revised a form for companies and mandated them to furnish information about payments to micro and small enterprises that are pending for 45 days or more, on a half yearly basis.

“It is a welcome move for protecting micro, small and medium enterprises. But those companies who have MSME suppliers also need to be incentivised so that this framework of micro, small and medium enterprises takes care of everyone. This is in addition to incentive provided by income tax disallowing deduction if payment to micro and small enterprise is outstanding beyond 45 days,” Makarand M Joshi, Founder Partner, MMJC and Associates had said at the time.