Well intentioned move for MSMEs backfires, industry hopes for relief
Introduced in 2023, Section 43B(h) mandates timely payments from buyers to MSMEs within 45 days, aiming to protect small businesses. However, its implications in Assessment Year (AY) 2024-2025 have sparked debate, with concerns over its impact on industries and calls for a balanced approach.
In 2023, government introduced Section 43B(h), specifically targeting the protection of Micro, Small, and Medium Enterprises (MSMEs). This section aimed at safeguarding the interests of these vital contributors to the Indian economy and mandated timely payments from buyers to MSMEs for goods purchased. However, the implications of this rule, particularly evident in the Assessment Year (AY) 2024-2025, have sparked debate and concern across various industries.
The crux of the matter lies in the stipulation that buyers must settle dues for goods procured from MSMEs within 45 days of purchase. Moreover, all pending payments must be cleared before the fiscal year-end on March 31, 2024. Failure to comply with these provisions results in pending payments being deemed as income, subject to taxation. However, if purchase made in Feb/Mar and payment made is in 45 days, such purchase will be allowed as deduction
This regulatory intervention was welcomed by MSMEs as a means to address the perennial issue of delayed payments, which often cripple their cash flows and hinder their growth prospects. However, the repercussions of such stringent timelines reverberate across the business landscape, eliciting mixed reactions from various stakeholders.
While many have viewed it as a lifeline for small businesses grappling with liquidity constraints due to delayed payments, exporters and wholesalers voiced vehement objections, citing practical challenges and adverse impacts on their operations.
The textile industry, for instance, expressed concerns over the viability of the shortened payment cycle. Traditionally accustomed to longer payment terms ranging from 90 to 120 days, the industry foresees significant disruptions. Such abrupt changes could lead to order cancellations and a potential shift in favor of larger enterprises or non-registered entities, undermining the very essence of supporting MSMEs.
Similarly, the chemicals trading sector anticipates potential ramifications, albeit with a lesser degree of certainty. While no immediate impact is observed, apprehensions linger regarding future repercussions. The overarching fear is that the sector may not remain unscathed, echoing the sentiments echoed by other industries.
Moreover, insights from other industry sources shed light on the intricate web of global trade dynamics. Export-oriented businesses, particularly those catering to African countries and Sri Lanka, face unique challenges. The low forex reserves of these nations coupled with unpredictable payment cycles pose significant hurdles. Despite supplying goods to genuine customers, the liquidity crunch in these markets translates to delayed payments, exacerbating the cash flow predicament for Indian exporters.
In light of the mounting concerns and practical challenges faced by various sectors, industry has asked for extending the implementation of Section 43B(h) by an additional year have gained traction. Such an extension would provide businesses with the necessary breathing space to adapt to the new regulatory framework without facing undue disruptions.
In essence, while the intention behind Section 43B(h) is commendable in its effort to bolster the MSME sector, its implementation has unveiled a complex web of challenges and unintended consequences. Balancing the interests of MSMEs with the operational realities of diverse industries remains a formidable task for policymakers. As discussions surrounding the potential extension of this section persist, stakeholders eagerly await a resolution that strikes a harmonious balance between regulatory compliance and economic sustainability.
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