Finance Ministry Mulls Delay on MSME Payment Rule

Finance Ministry Considers Deferment of Rule 43B (h) Enforcement

In a recent development, sources have revealed that the Finance Ministry is contemplating a deferment of the enforcement of Rule 43B (h) under the Income Tax Act, particularly concerning payments to micro, small, and medium enterprises (MSMEs). This potential delay is expected to extend over a full financial year, with the rule tentatively scheduled to take effect from April 1, 2025.

Introduction of Rule 43B (h)

The Finance Act of 2023, which brought about amendments to the Income Tax Act, introduced clause (h) in Section 43B with the primary objective of ensuring timely payments to MSMEs. This amendment imposed a 45-day limit for the assessee to fulfill payments, failing which pending payments would be deemed as income and subject to taxation.

Industry Feedback and Concerns

The decision to reconsider the implementation timeline stems from numerous industry representations submitted to the finance ministry. Various sectors have expressed apprehensions regarding the shorter payment cycle, citing challenges to traditional practices and instances of order cancellations.

Industry bodies, in their proposals to the finance ministry, have suggested potential tweaks to the act or a temporary postponement to provide businesses with the necessary adjustment period.

Consultation with MSME Groups

On February 16, the Ministry of MSME reached out to several SME groups to solicit their feedback on this matter. These SME groups were requested to submit their comments by February 19, as per sources familiar with the matter.

Conclusion

The Finance Ministry’s contemplation of deferring the enforcement of Rule 43B (h) under the Income Tax Act underscores the significance of industry feedback and the need for a balanced approach in policy implementation. As discussions continue, stakeholders await further developments regarding the potential postponement and its implications on MSMEs and the broader business landscape.