Continue 45-day MSME payment rule: Industry body to Finance Minister

Industry body SME Chamber of India has urged Finance Minister Nirmala Sitharaman to continue the 45-day MSME payment rule for corporates and other buyers.

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.

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.

"We are pursuing not to change the 45-day MSME payment rules imposed by the Department under the pressure of corporates or multinational companies to save the life span of the MSME sector. 

Section 43B(h) of the Income Tax Act reinforces the importance of timely payments by mandating that companies settle payments to MSME vendors within 45 days to qualify for deductions," SME Chamber said in a statement addressed to Sitharaman.

The industry body argued that this provision serves as a powerful incentive for companies to adhere to payment timelines, thereby supporting the financial health of MSMEs.

"Many MSMEs are NPA victims of corporates, who are buying from them and not dealing through the TReDs platform. 

Most of the corporates and multinational companies are forcefully insisting to deregister from the Udyam Portal and insisting not to deal through the TReDs platform," SME Chamber stated.

The industry body also urged the finance minister to consider providing Rs 5 crore loans under the "Differential Rate of Interest" scheme for micro and small enterprises.

It suggested changing the NPA definition from 90 days to 180 days for the MSME sector.

The chamber also sought the setting up of a task force to review various issues, hurdles, grievances and difficulties faced by MSMEs for availing credit facilities and the lack of approach by the financial institutions towards enhancement of credit flow to the MSME sector.