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45-day MSME payment rule comes into effect on April 1: What it means and what changes. Complete details here

Income Tax rule that bars businesses from claiming tax deductions for payments beyond 45 days to MSMEs for supply of goods and services will come into effect today (April 1).

New MSME payment rule 2024: FISME said that the rule could be beneficial for MSMEs.(Representational)

What will change as per the new rule for MSMEs?

As per the rule, if a larger company does not pay an MSME within 45 days in case of written agreements, it cannot deduct that expense from its taxable income.

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The rule comes as some industry bodies urged government to postpone implementation while the Federation of Indian Micro and Small & Medium Enterprises (FISME) said that the new rue could be a game-changer for MSMEs as large buyers could cold-shoulder suppliers and buy from those MSMEs that are not registered with Udyam.

What industry body has said on MSME rule?

FISME said that ”such fears are unfounded” as “replacing dependable suppliers just because a large company does not want to pay them in time is a ridiculous conclusion to draw. In any case, in the worst eventuality, the tax thus paid over such delays can be adjusted the following year when the company pays the supplier. But it does instill discipline in commercial practice.

FISME also said that the rule could be beneficial for MSMEs as, “The provision strengthens MSMEs’ position when negotiating payment terms with larger companies. Timely payments can minimise potential disputes and legal hassles over outstanding dues. It encourages more transparent and accountable business practices in the MSME ecosystem.”

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