New 45-Day MSME Payment Rule Takes Effect from April 1: Implications and Changes Explained

Starting April 1, a significant Income Tax rule aimed at streamlining payments to Micro, Small, and Medium Enterprises (MSMEs) will come into force. Under this regulation, businesses will be prohibited from claiming tax deductions for payments made beyond 45 days to MSMEs for the supply of goods and services.

Here’s what the implementation of this rule means for MSMEs and larger companies:

Changes for MSMEs:

• With the enforcement of this rule, larger companies must ensure timely payments to MSMEs within 45 days, especially in cases where there are written agreements. Failure to do so would render them unable to deduct these expenses from their taxable income.

Impact on Larger Companies:

• Some industry bodies have expressed concerns over the implementation of this rule, suggesting that it could potentially lead to larger companies sidelining suppliers and favoring MSMEs not registered with Udyam, the official MSME registration portal.

Industry Body Perspective:

• The Federation of Indian Micro and Small & Medium Enterprises (FISME) has addressed these concerns, stating that fears of larger companies replacing dependable suppliers due to payment delays are unfounded. FISME emphasizes that the rule instills discipline in commercial practices and strengthens MSMEs’ negotiating positions.

Benefits for MSMEs:

• FISME highlights the potential benefits of the rule for MSMEs, asserting that timely payments can minimize disputes and legal complications over outstanding dues. Moreover, it encourages transparent and accountable business practices within the MSME ecosystem.

While the implementation of the 45-day MSME payment rule may raise apprehensions within the business community, FISME remains optimistic about its potential to foster healthier business relationships and ensure fair treatment for MSMEs.

As the rule takes effect, stakeholders across industries will closely monitor its impact on payment practices and the overall dynamics between MSMEs and larger companies.