MSME Day 2024: How MSMEs Are Navigating the 45-Day Payment Rule 

This clause has created a problem; that is, many companies have cancelled their orders with registered MSMEs and shifted to unregistered MSMEs. 
MSME Day 2024: How MSMEs Are Navigating the 45-Day Payment Rule 

June 27 is designated as Micro, Small, and Medium-sized Enterprises (MSME) Day by the United Nations General Assembly, UNGA, to highlight the significant contributions made by MSMEs across the world. 

Micro, small, and medium enterprises (MSMEs) constitute 90 per cent of global businesses, provide 60–70 per cent of employment, and contribute 50 per cent to worldwide GDP. In this country, MSMEs contribute over 29 per cent to the GDP and account for 50 per cent of total exports. 

Highlighting the significance of MSMEs, Saahil Goel, MD & CEO, Shiprocket, said, “On International MSME Day, we want to double down on our commitment to making e-commerce simple, accessible, and trustworthy for the MSMEs of Bharat.” 

E-commerce serves as a significant aspect for MSMEs to penetrate the digital market. With the increase in internet users, the e-commerce segment is expected to reach $325 billion by 2030, as per a report by Invest India. 

Read: DoT Unveils Initiative to Aid MSMEs and Start-Ups in Embracing Industry 4.0

With 881 million internet users, India has the second-largest internet user base globally. This positions the country to become the third-largest online retail market by 2030, fueled by the swift growth of its digital economy, according to the report. 

Highlighting the work done by the government to support MSMEs, Arun Poojari, Co-Founder & CEO of Cashinvoice, said, “Government-supported initiatives like the ECLGS, Mudra Loan Scheme, and CGTMSE have empowered MSMEs to bridge the credit gap, enabling them to scale operations, innovate, and expand their market reach.” 

The 45-Day Payment Rule 

In last year's budget, the government added a new clause to the Income Tax Act, Section 43B(h). Under this act, MSME vendors must be paid by companies within 45 days to claim deductions. This measure was introduced to support the working capital cycles of MSMEs, promoting their financial stability and smooth operations, said Rahul Gupta, Partner, SN Dhawan & CO LLP. 

“Delays in payments for their supplies are a perennial problem that Indian MSMEs face. On MSMEs' demand, the government has ordered through IT provisions that payments to MSMEs if delayed beyond 45 days would not be allowed as business expenses. It will have a beneficial effect on commercial practices in India,” said Anil Bhardwaj, Secretary General, FISME, and EDII Governing Board Member. 

Read: Empowering India’s MSMEs to Grow with E-Commerce

However, this clause has created a problem; that is, many companies have cancelled their orders with registered MSMEs and shifted to unregistered MSMEs. Some MSMEs even approached the Supreme Court against the new norm. 

The Union MSME Ministry has contacted industry players for solutions, asking stakeholders to propose ways to address issues stemming from the Income Tax Act, as per a report by Indian Express. 

Meanwhile, the traders’ body, the Federation of All India Vyapar Mandal (FAIVM), has also urged the BJP-led NDA government to increase the time period for payment to MSMEs from 45 days to 180 days. 

The 45-day payment rule was implemented, according to Finance Minister Nirmala Sitharaman, last month at the request of MSMEs experiencing payments from their purchasers delayed for over 45 days. 

While interacting with MSMEs and local industries, Sitharaman said, as per the Financial Express, “If MSMEs want relaxation in payments made by their buyers without the 45-day limit, whether over 45 days, 150 days, a year, or further, then it is easy to make the changes. We will change it and go back to the original rule.” 

MSMEs are the backbone of the country. However, they do face several challenges. Regulatory challenges, inadequate access to finance, and difficulty in adopting technological solutions are some of them. “There is an urgent need for legal recognition, subsidies, and favorable government policies. Only with the help of the government can the hemp sector truly grow in India. Together, we can continue to push boundaries and create a sustainable future,” said Keshav Agarwal, Director, Cannarma.

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