Govt May Extend 45-day Payment Deadline For MSMEs To Ease Concerns

The Indian government is reportedly considering relaxing the 45-day payment rules for micro small and medium enterprises (MSMEs). According to the news agency PTI, the government might push back the deadline for big companies to pay MSMEs for goods and services beyond the current 45-day limit. 

This possible change aims to address MSME's worries that strict payment terms could make large corporates look for other suppliers. 

Last year's Budget introduced the 45-day payment rule to make sure MSMEs got paid on time, as they've long had trouble with late payments from bigger companies. But MSMEs worry this rule might backfire, with large corporates avoiding them and choosing bigger suppliers or non-MSMEs instead.

The PTI reported that the government is looking at ideas from MSMEs shared during pre-budget talks to change Section 43B(h) of the Income Tax Act. Right now, this section says big companies can't subtract costs from their taxable income if they don't pay MSMEs within 45 days. The goal was to make sure MSMEs get paid on time, but it's made MSMEs worry that large businesses might choose other suppliers to avoid possible tax issues. 

MSMEs play a key role in India's economy. They make up 30 per cent of the country's GDP and 45.56 per cent of all exports. They're also the second-biggest job creator after farming. Because MSMEs are so important, the government wants to tackle their problems and help them keep growing.

Ealier, Finance Minister Nirmala Sitharaman hinted that government may tweak the rule in the union budget in July after MSMEs made their case.