In an exclusive revelation, Moneycontrol has learned that the government is actively considering relaxing the controversial 45-day payment rule for Micro, Small, and Medium Enterprises (MSMEs) in the upcoming July Budget. The stringent regulation, which came into effect on April 1, 2023, mandates larger corporations to pay their MSME suppliers within 45 days or face penalties. However, it has faced widespread criticism from industry quarters for its severity and fears of disrupting established business practices.
According to sources privy to the discussions, the options being explored include extending the payment window to 60 days or revoking the recent amendment to the Income Tax Act that levied higher taxes for late MSME payments. The MSME Ministry has held discussions with the Finance Ministry and is likely to submit a formal proposal seeking a resolution amidst the ongoing flux.
While the 45-day payment rule has been a part of the MSME Development Act for several years, it remained largely ineffective until the interim Budget 2024 aligned it with the Income Tax Act, providing it with teeth. However, concerns have mounted over the stringency of the rule, with some businesses reportedly considering asking their MSME suppliers to relinquish their registration to continue doing business without the constraints of the 45-day window.
As the nation eagerly awaits the July Budget, the government’s decision on the 45-day payment rule for MSMEs is being closely watched, given its potential far-reaching implications for India’s crucial MSME sector, which accounts for a significant portion of the country’s economic output and employment.
