Introduction

The move to help the ailing MSME sector assumes huge significance at a time when the Indian government is going to bring a new proposal in Budget 2024, to ease payment deadlines for the MSMEs, whose growth and sustainability have been badly affected because of delayed payment cycles.

It contributes to almost 30% of the GDP and accounts for nearly 45% of the country's total exports. Notwithstanding this huge impact on the economy, MSMEs have suffered due to delayed payments by large companies. To avoid this problem, through the Finance Act 2023, the government provided for Section 43B (h) under the Income Tax Act, making it compulsory for every assessed to pay money to MSMEs within 45 days from the date of purchasing goods or services; otherwise, the expenditure incurred by such assesses could not be deducted from their taxable income. 

This provision, Section 43B (h), has therefore created certain problems inadvertently. These large corporates represented their fears regarding inflexible 45-day payment, which might just force them to scout for supplies elsewhere and thus bypass the MSME suppliers. This is creating fears in the minds of MSMEs that they may either lose business to non-MSME entities or arm-twisting them into giving up their MSME registration to continue business relations. It is to this issue that the government is looking at easing the mandatory 45-day payment rule. The new proposal can extend the payment period and give more flexibility to large corporates with their liquidity while still ensuring that MSMEs get their money on time. The fine print of the proposal is likely to be announced on July 23, 2024, during the presentation of the Budget.

The development has been welcomed by the MSME sector which was grieved by the earlier order. Experts think that providing more flexibility in payment schedules would be instrumental in keeping business relationships intact between MSMEs and corporates while maintaining strict action against delayed payments. 

"Government should acknowledge the contribution of MSMEs and accord them easy access to credit and other resources", said Vijay Kalantri, Chairman of WTC Mumbai and President of the All India Association of Industries. "The government must support MSMEs through extending payment deadlines and making compliance procedures easier," he said. 

The 2024 budget has brought a lot of relief on these lines to the MSMEs battling several liquidity issues owing to delayed payments. It would foster an environment more beneficial to expand and continue the small businesses in India, not at the expense of interest among larger corporations. With the presentation of the Budget drawing closer, all eyes would now be on exactly how Finance Minister Nirmala Sitharaman proposes to address concerns of the MSME sector and how growth-boosting measures would help this sector contribute to the Indian economy.

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