Indian Exporters Urge Govt For Relief From The 45-Day Payment Rule For Purchases From MSEs

The chiefs of major export promotion councils and Federation of Indian Export Organisation sent an appeal to PM Modi via a letter and urged the govt to exempt them from Section 43B(h) of the I-T Act

Indian exporters sought the government and requested an exemption from the 45-day payment rule for goods purchased from MSEs, emphasising that the norm will impact their businesses. The chiefs of major export promotion councils and Federation of Indian Export Organisations sent an appeal to Prime Minister Narendra Modi via a letter and urged the government to exempt the exporting firms from Section 43B(h) of the Income Tax law.

What Is Section 43B(h)?

Introduced in the Finance Act 2023, Section 43B(h) of the I-T Act states that firms are eligible for tax breaks if they make payments to their small business suppliers in the given time limits under the MSMED (Micro, Small, and Medium Enterprises Development) Act, 2006, reported PTI. 

The new norms were introduced to ensure that small businesses get their dues in time. By allowing firms to avail tax benefits if they pay within 45 days, if there is an agreement, and within 15 days, in the absence of one, the rules help small businesses in securing their funds in a timely manner. 

Exporters' Argument

However, the representatives from the exporters’ community in their letter dated February 16 said, “Our humble request is to consider the export community separately for domestic supplies as our challenges and situations are very different. Exporters who receive supplies from micro and small units have been affected as it has impacted their liquidity.” 

The community argued that exporters receive payments with an average time lag of 120 days, even thought the RBI permits a nine-month period to realise export proceeds as the whole process sometimes takes longer. “The average lead time for an export consignment is about 90 days compared to a maximum of 14 days for domestic consignments within India. Buyers generally pay after receiving the goods, which, with an additional 30 days, makes it 120 days for exports,” the letter stated. 

Further, the representatives urged that exporters typically maintain larger inventories owing to economic and demand factors in the destination country. This has surged due to the current geopolitical uncertainties. 

“In view of this, we humbly request that in order to provide a level playing field to our exporters compared to exporters from other countries, this provision should not apply to exports. Therefore, the supply of goods from the micro and small units to exporting units, either for manufacturing of export products or for the further exports, should be exempted from this. If the government would not exempt them, the 45 days should be increased to 120 days,” the community requested via the letter. 

GTRI Recommendations

Echoing the sentiment, the Global Trade Research Initiative (GTRI) noted that the new norms under Section 43B(h) aim to provide support to the MSEs and enhance their financial stability. However, these rules will pose further challenges to compliance efforts and increase fiscal strain for firms, it said.

Ajay Srivastava, founder of the global think tank, recommended that exporters should be given exemptions from the rules completely. “The RBI allows nine months for realising money from foreign buyers. China allows long credit lines to its buyers. The current provision will immediately start hurting India's exports from small firms and weaken India's export story and targets.GTRI requests a reconsideration of Section 43B(h), advocating for exemptions for exporters, a non-retrospective application from April 1, 2024, and an inclusive approach that encompasses medium enterprises. Let's ensure our tax policies promote growth, sustainability, and the global competitiveness of all Indian enterprises,” he emphasised.