The government is reportedly considering easing the requirement of making payments to MSMEs within 45 days of purchasing goods and services, media reports said. The authorities are planning to relax the norms to keep a check on large corporates from opting for other sourcing avenues. 


The announcement regarding this change could be made in the upcoming Budget, scheduled to be presented on July 23, reported PTI citing sources in the know. The report said that the Centre is looking into suggestions related to changes in the Section 43B(h) of the Income Tax Act made by MSMEs during the discussions ahead of the Budget.


In last year’s Budget, the government introduced a clause under Section 43B of the I-T Act to help resolve the challenges faced by the MSMEs due to delayed payments. According to this clause, added via the Finance Act 2023, a larger company has to make payments to the MSME within a 45 day period, in case of written agreements, failing which, it will not be allowed to deduct the expense from its taxable income. This will essentially mean higher taxes for the company.


However, now the MSMEs are worried that this rule might end up with the large buyers avoiding the MSME suppliers and taking their business to those entities that aren’t registered with Udyam or are not MSMEs, the report said.


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Sources further said that the revised rules were put in place to help the MSMEs receive their payments in time, however, now they are afraid that large corporates will shift their demand towards other firms or ask vendors to give up their MSME registration to do business with them. Notably, the MSME sector contributes to 30 per cent of the nation’s gross domestic product (GDP) and is also the second largest employers after agriculture.