MSMEs keep fingers crossed as 45-day payment rule kicks in

AS THE 45-DAY-PAYMENT rule favouring micro, small and medium enterprises (MSME) is all set to come into force from April 1, the units are generally upbeat. A section of the MSME industry, however, see the chances of large corporates reducing purchases from them to circumvent the rule. There are concerns over the possible loss of future orders, an industry source said.

- GEETA NAIR

NEW NORMS

■ Large companies are unhappy about the new norm as it would disrupt their working capital and cash flows 
■ The penalty (in the form of denial of tax deduction) for delayed payments would lead to their money getting blocked for more than a year
■ If the payment is not made in the specified time, companies will not be allowed to claim the deduction 
■ The buyer will have to pay tax and the overdue amount is subjected to taxation 
■ It will be reversed only after payments if and when payments are made

On their part, large companies are unhappy about the new norm as it would disrupt their working capital and cash flows. The penalty (in the form of denial of tax deduction) for delayed payments would lead to their money getting blocked for more than a year.

When Section 43B(h) of the Income Tax Act comes into effect, companies have to make payments to MSME vendors within 45 days. If the payment is not made in the specified time, companies will not be allowed to claim the deduction. The buyer will have to pay tax and the overdue amount is subjected to taxation. It will be reversed only after payments if and when payments are made.