After Effects If Late Payment Done to Vendor Under MSME Act

Credit and finance for MSMEs: Addressing the delayed payment crisis faced by micro and small enterprises — among the biggest challenges to their growth — the budget 2023-24 proposed to amend section 43B of the Income Tax act with a new clause (h) in order to include payments made to such enterprises. The section will provide for any sum paid by the assessee (buyer) to MSEs beyond the 45-day time limit (specified in section 15 of the MSME Development Act) will be allowed as deduction only when the payment is actually made to MSEs.

The budget presentation said, “In order to promote timely payments to micro and small enterprises, it is proposed to include payments made to such enterprises within the ambit of section 43B of the Act. Thus, deduction for such payments would be allowed only when actually paid. It will be allowed on accrual basis only if the payment is within the time mandated under the Micro, Small and Medium Enterprises Development Act.” 

“This is expected to end the delayed payment menace finally,” Rajiv Chawla, Chairman of MSME association

Chawla explained that the onus will be now on the buyer to pay MSMEs on time otherwise he or she will have to reverse the GST input credit while the amount they pay to MSEs would be disallowed as an expense and hence, they would be liable to pay income tax on it.

“The government is giving all such buyers who don’t pay MSMEs on time to amend their attitude towards MSME payments. Moreover, this move of amending section 45B will not have any financial implication on the government as well,” Chawla added.