Finance Ministry Looks Up For Changes In The MSME 45 Day Rule

The Finance Ministry could announce changes in the 45-day payment rule of MSME. The matter is still unconfirmed. However, sources point out the possible changes. The changes might be an extension of the number of days for payment, cancelling the rule or implementation of something more impactful. The finance ministry could announce these changes in the July Budget. However, things are yet to receive clarity. Finance Minister Nirmala Sitharaman can look for possible changes in the Finance Act 2023 Section 43B clause h.

Will MSME’s 45-Day Payment Rule Undergo Any Changes?

MSME 45-day payment rule could underpossible changes in the July budget. The rule comes under the Finance Act Section 43B. According to the rule, the buyers buying any goods or services from the Micro and Small enterprises must pay the billing amount within 45 days of the purchase or 15 days in case of no agreement. However, Medium enterprises are not part of this rule. The rule is applicable from 1 April 2024.

Many MSEs are going against this rule as they state that the buyers are shifting towards the Medium enterprise or the non-MSMEs for purchase. The finance ministry also recognised this issue. There can be discussion upon changes in clause h. This clause disallows expenses to buyers on invoices from MSEs unless paid within 45 days with agreement and 15 days without agreement. Thus, any buyer who doesn’t pay within 45 days will have to pay the interest on this amount after the due date. Apart from that, if it exceeds the current financial year, the buyer will also have to pay income tax on the amount unpaid to MSEs. Thus, the buyers won’t be able to add the invoice amount to expenses unless paid for real.

What changes can we expect? The government can look up or announce a way through which the MSME credit cycle remains undisturbed. The ministry is taking the matter seriously and is not in favour of any rush. They prefer to keep it beneficial for all. Bengal has the most of the MSMEs. Thus, the state government is on a mission to empower this MSME sector by providing loan assistance of Rs. 1.53 Lakh Crores.

The Clothing Manufacturers Association of India (CMAI) also provided a solution for this rule. As the garment industry relies highly upon the credit system, they prefer the 45 days to be extended to 90 days by 31 March 2025. The next year, the time can be reduced to 60 days and then 45 days to give enough time for buyers to adjust to the new system.