In their efforts trying to promote growth of Micro Small & Medium Enterprises, Government has brought about amendment effective from 1st April 2024 which requires all business entities, including companies, proprietorships, partnership firms, or LLPs, to timely make payments to registered Micro and Small enterprises suppliers.
Section 43B(h) of the Income Tax Act, a provision introduced in the 2023 Finance Bill, has generated significant confusion as well as anger among business community engaging with Micro and Small Enterprises. To claim the deduction, the payment to Micro & Small Enterprises registered under MSME Act, must be made within 15 days or if there is a written agreement between the buyer and seller within 45 days and not beyond that (even if they have an agreement) from the day of supply of goods or services or acceptance of the same whichever is later, as defined in section 15 of the MSMED Act 2006.
Although the intention on the part of the Government is justified for securing the MSME’s interests, but at the same times it is directly influencing genuine business transaction. Various business have their own credit period defined over period of time by way of practice, which may extend from immediate payments to credit period ranging from 30 days to 90 days or even more. Forcing them to pay the amounts within a stipulated period may improve the working capital flow of Small or Micro enterprises but it disturbs the flow for the entity which is forced to pay.
No system can work seamlessly where someone is benefited at the cost of other.
Business communities have started evaluating and exploring strategies to deal with this situation by way of returning or rejecting the goods, not responding to letters asking for MSME Status, and even asking suppliers to de-register themselves from MSME Act. These are not good signs.
There has been lot of hue & cry and representation are being made to the concerned ministry to either defer the implementation or implementing in phased manner.
With the intention to provide relief to small enterprises or improve their working capital, government authorities would do well to have a interaction with representatives from various business association representing small & large business before arriving at such provision which unilaterally tends to decide how the credit period should work. Better option would be to provide security to Small or Micro enterprises in terms of immediate action against defaulting payers when such Micro or Small entity approaches MSME authority, or putting curbs on suppliers who defaults or levying penalty on compliant being filed.
