The writer elaborates on steps taken by the government to facilitate timely payment to MSMEs.
The major grievance of Micro, Small, and Medium Enterprises (MSME) is timely recovery of their dues. The delayed payments bring in sickness, as these units do not have cushions to fall back upon. The Ministry of Ministry of Micro, Small and Medium Enterprises, Government of India, has therefore taken an initiative for filing an online application by the supplier Micro and Small Enterprises (MSE) unit against the buyer of goods/services before the concerned Micro and Small Enterprise Facilitation Council (MSEFC) of the concerned State or Union Territory. The application will be viewed by this facilitation Council and provide relief to the unit. The Micro, Small and Medium Enterprise Development (MSMED) Act, 2006, which contains provisions of Delayed Payment to MSEs. The State Governments have to establish MSEFCs for settlement of disputes on getting references of filing delayed payments.
MSEFC of the State after examining the case filed by MSE unit, will issue directions to the buyer unit for payment of due amount along with interest as per the provisions under the MSMED Act 2006. This council has quasi judicial status but does not have the punitive powers to make the buyers fall in line immediately. That was the reason why all the SME associations together urged the Government to bring in stringent measures which will support the small units.
In order to promote timely payments to MSEs, the Finance Bill, 2023 included payments made to such enterprises within the ambit of section 43B of the Act. Accordingly, a new clause (h) was inserted in section 43B of the Act to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the MSMED Act shall be allowed as deduction only on actual payment. The Section and the proviso thereto read together provide that deduction is allowable if the actual payment is made by the due date of furnishing the return of income. As far as the sum covered by the proposed clause (h) is concerned, the payment of the principal sum due to a MSE must be made within the time limit specified in section 15 of the MSME Act so as to qualify for deduction.
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 able to claim deduction. The buyer will have to pay tax and the overdue amount is subjected to taxation. This will be a deterrent for those who willfully indulge in the delayed payments. These delayed paying units and mostly the large units, real estate industry etc started harassing the MSME units by threatening them of withdrawing the business if they pursued with their timely payment demand. They went to the extent of pressurising the MSME organisation leaders to demand withdrawal of this provision in section 43B. Some have succumbed to these pressures but the units will be put to a lot of inconvenience due to non receipt of the timely payments. Government needs to remain firm in their resolve to help the small units. Once this legal change is brought in, surely all will fall in line and follow the rule of the law.
The Bill provides that this amendment will be effective from 1st April, 2024 and will accordingly apply to the assessment year 2024-25. It means the proposed amendment will apply to payments falling due on or after 1st April, 2024 and not to the unpaid amounts brought forward from past years on 1st April, 2024. The small units sincerely hope and pray that this amendment comes into effect and help them to improve their financial health.
