45-Days MSME Payment Rule for Income Tax Deduction

A new rule has been put in place to help small and medium-sized businesses in India get paid on time. From April 1, 2024, the government will allow buyers to claim income tax deductions for expenses only when they pay their suppliers, specifically the MSEs. This rule is a big deal for businesses in India, especially the smaller ones that play a big role in the country’s economy. Let us know all about the latest 45- day MSME Payment Rule through this article.

What is the 45-Days MSME Payment Rule?

The 45-days MSME Payment rule makes it mandatory that major corporations are required to settle dues owed to Micro, Small, and Medium Enterprises (MSMEs) within 45 days from the receipt of goods or services, or within 15 days in the absence of a written agreement. This measure seeks to tackle the persistent problem of delayed payments, which frequently disrupt the financial stability of smaller enterprises.

Challenges Surrounding the 45-Day Payment Rule

Despite being in place since the MSMED Act of 2006, the enforcement of the 45-day payment rule has been ineffective.

As a result, the recent announcement has caused turmoil in the MSME community. Many entrepreneurs are facing order cancellations, while others are worried about meeting the 45-day payment deadline.

Order Cancellations:

Large companies are cancelling orders from smaller suppliers due to concerns about meeting the rule’s deadlines. This action could severely impact MSMEs, particularly those already facing financial constraints.

Challenges in Compliance:

You need robust internal systems to track invoices and ensure timely payments as per the rule. Implementing such systems can be time-consuming and expensive, especially for smaller businesses. However, using the best and advanced technology softwares that work online and with just a few clicks can help you in it. One such software that you must check right now is: InstaBill

Contractual Disputes:

Interpretation of “written agreements” may lead to disagreements between you and your suppliers. This ambiguity creates uncertainty and hampers smooth business transactions.

Benefits for you as an MSME from 45-Days MSME Payment Rule

Despite the challenges, there are also several benefits of the 45-Days MSME Payment Rule. These are as follows:

Improved Cash Flow for MSMEs

Effectively implementing the rule can significantly improve the cash flow situation of businesses having MSME Registration, enabling them to invest, grow, and contribute more to the economy.

Transparency and Accountability

Increased clarity and stricter enforcement can promote transparency and accountability in your business dealings, fostering a more level playing field.

Digital Solutions

Leveraging technology can play a crucial role in streamlining payment processes and ensuring compliance. Automated invoice tracking, online dispute resolution, and digital payment platforms can offer efficient solutions.

Conclusion

In conclusion, the convergence of section 43B(h) of the Income Tax Act and the MSMED Act, 2006, creates a robust framework for enforcing MSME payments. Small businesses must navigate these regulations carefully, ensuring adherence to payment timelines and interest provisions. The detailed analysis presented here serves as a roadmap for businesses to comprehend, execute, and harmonise with the revised regulations, safeguarding their financial operations and partnerships with MSME suppliers.