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Changes of a considerable kind have been brought about as a result of the recent introduction of new MSME payment rules for the assessment year 2024-2025. Buyers are required to make payments to micro, small, and medium-sized enterprises (MSMEs) within 45 days of receiving the items, and the deadline for any payments that are still outstanding is March 31 in the year 2024.

Failure to comply with these updated payment plans may result in payments that are past due to micro, small, and medium-sized enterprises (MSMEs) being considered taxable income.

Both the textile and chemical industries, which are used to extended credit periods, are already experiencing difficulties as a result of the new 45-day payment window.

This move has increased the number of orders that have been canceled in markets such as the textile marketplaces in Ahmedabad. 

According to a similar pattern, the chemical industry often extends the regular credit period, which is roughly 60 days, because of the low market demand.

Payments are required to be made within the period set in the MSMED Act, which is normally 15 days. This change to the Income Tax Act has an effect on how deductions are determined for payments made to micro, small, and medium-sized enterprises (MSMEs).

To guarantee that they are appropriately claiming deductions, businesses are required to make payments to registered micro, small, and medium-sized enterprises (MSMEs) within the allotted term.

Consequently, a new clause (h) was added to section 43B of the Act in order to define that any amount that is payable by the assessee to a micro or small enterprise after the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 shall only be allowed as a deduction on actual payment.

The change was made in order to ensure that payments were made in a timely manner. There is, however, a plan that the exception to section 43B of the Act will not follow these kinds of payments.

According to Maneesh Bawa, a Partner at Nangia Andersen India, the most significant and ongoing challenge that micro, small, and medium-sized enterprises (MSMEs) confront is the collection of payments.

The projected value of delayed payments from buyers to micro, small, and medium-sized enterprises (MSMEs) is ₹10.7 lakh crore on a yearly basis. According to him, “the government has placed such payments within the ambit of Section 43B of the Act in order to encourage timely payments and offer a healthy cash flow to micro and small firms,” which is a statement that he made.

It is important for businesses to stick to a detailed checklist in order to guarantee timely compliance:

  • Start communicating with suppliers to verify their classification as a micro, small, or medium-sized enterprise.
  • Analyze the suppliers to see if they meet the criteria for small or micro firms.
  • Identify which suppliers are involved in trading, manufacturing, or providing services.
  • It is important to check if the payments made to suppliers are related to “Capex” products.
  • Take a look at any current written contracts that pertain to the conditions of payment.
  • Find out when the deadline is based on the date that the goods or services were delivered.
  • In order to guarantee prompt payment, you should issue a check on or before the day when the payment is due.
  • Check the status of any prepayments given to small and medium-sized enterprises.
  • Ensure that micro, small, and medium-sized enterprises never have to pay interest.
  • Check if you are subject to the Minimum Alternate Tax or the presumptive taxes system.

Businesses have the ability to avoid problems with claiming deductions for payments made to micro, small, and medium-sized enterprises (MSMEs) and assure compliance with the new legislation if they follow these suggestions.

Invoice DateDue Date u/s 43B(h)Date of PaymentDeductible in AY
10-02-202426-03-202431-03-20242024-2025
10-02-202426-03-202430-04-20242025-2026
20-02-202405-04-20245-04-20242024-2025
20-02-202405-04-202430-04-20242025-2026

The Implementation of Compliance Strategies to Support Long-Term Business Relationships

Impact on MSMEs: Discuss the beneficial impact that timely payments have on micro, small, and medium-sized enterprises (MSMEs) by improving their cash flow and liquidity, which in turn make it possible for them to reinvest in their companies, grow their operations, and generate job opportunities.

Challenges faced by MSMEs

  • It is important to highlight the issues that micro, small, and medium-sized enterprises (MSMEs) experience as a result of delayed payments. These challenges involve 
  • Financial pressure, 
  • Difficulty in paying operating expenditures and 
  • Restricted access to finance, 

All of these factors may impair the development and sustainability of MSME businesses.

Government support and initiatives

Mention any government efforts or assistance programs that are intended to support micro, small, and medium-sized enterprises (MSMEs) in getting timely payments.

Some of these are setting up specific ways for people to file complaints or giving people money to follow the rules.

Penalties for not following the rules

Write down the punishments or outcomes that buyers will face if they don’t follow the new payment rules. These punishments could be going to court, paying a fine, or having their image hurt. It helps to explain what “after” means in terms of the law.

Best Practices for Buyers

Micro, small, and medium-sized businesses (MSMEs) should be given advice on how to get paid quickly by buyers.

  • The making of payment processes easier,
  • Putting in place automatic payment systems
  • Keeping clear lines of communication open with providers.

Suggestions or plans that MSMEs can use to follow the new rules.

  • To make sure that billing and follow-up happen on time, keep an eye on the new rules’ payment dates.
  • Make billing more accurate and faster by making payment terms and information clearer.
  • Talk to customers openly about payment terms to clear things up and settle any disagreements.
  • If you have a lot of different kinds of customers, one customer’s late payment won’t hurt you as much.
  • Set up terms for payment: You can get more cash by talking with buyers for shorter payment terms or upfront payments.
  • To handle your money well, use planning and cash flow forecasts.
  • Automation and keeping track of payments: To organize and keep track of payments, use billing software and tools for keeping track of payments.
  • As a result of the new payment limits, learn what your rights and duties are and protect your own interests.
  • Join industry groups or networks to stay up to date on changes in the field, such as changes to payment laws, and work with other people in the same field to solve problems.
  • If you need to make up for late payments, you might want to look into invoice financing or factoring.

Working together in business

Bring buyers and micro, small, and medium-sized businesses (MSMEs) together so that they can work together to solve payment problems. For both sides, this will help create a work environment that is good for everyone and encourage long-term ties.

Learning and being aware

Encourage businesses to take part in training or knowledge programs that teach stakeholders how important it is to meet legal obligations, make payments on time, and follow compliance standards.

Answers in technology

Explore the use of technology solutions, like digital billing platforms or payment tracking systems, that might help to speed up the payment process, cut down on delays, and make deals more clear.

Case studies or stories of success

Talk about examples of companies that have put in place means to make sure they pay micro, small, and medium-sized businesses (MSMEs) on time. Stress how these strategies have helped everyone involved.

Also Read: MSME Money Talk: Sources & Challenges in India

Wrapping It Up

Paying on time is an important part of running a business smoothly. This could lead to better relationships with providers, more trust between customers and businesses, and in the long run, stronger economies. Ending It All.

The new rule for paying micro, small, and medium-sized businesses (MSMEs) and the recent changes to the Income Tax Act both stress how important it is for customers and MSMEs to pay on time and follow the rules. In order to avoid fines and protect the survival of micro, small, and medium-sized businesses (MSMEs), companies must fully understand and follow these policies. Follow the suggestions and best practices listed above, and businesses will be able to successfully manage the complicated world of financial rules and help the micro, small, and medium-sized company (MSME) sector grow and develop.

Also Read: What Are The Benefits Of Integrating GST Registration With Your Invoice/ Billing Software?

FAQs

  • What is the new rule for MSME payments for the tax year 2024–2025?

People who buy things from MSMEs must now pay them within 45 days from the date they receive them. The last payment is due on March 31, 2024.

  • What will happen to people who don’t pay the way the new rules say they should?

If you don’t follow the rules, payments you make after the due date might be taxed as income.

  • How do the chemical and textile companies feel about the new 45-day payment window?

These companies are having trouble because they are used to loan terms that last longer. For example, more orders are being dropped.

  • What changes do the new changes to the Income Tax Act make to payment exemptions for MSMEs?

The new rule says that payments must be made within the 15-day time limit set by the MSMED Act in order to get paid.

  • What does the fact that posts have checklists mean for businesses?

The plan stays on track with the new rules for paying MSMEs on time. Simply put, payments made on time are very important for MSMEs.

  • Why are on-time payments so important for MSMEs?

When you pay your bills on time, your cash flow and liquidity improve. This lets MSMEs grow and spend money in their businesses.

  • Does it get hard for MSMEs when payments are late?

Not being able to get loans, pay their bills, or keep track of their money makes it harder for MSMEs to grow and stay in business.

  • How can businesses be sure they follow the new rules?

Businesses can make sure they follow the rules by keeping an eye on payment due dates, making the billing process better, and getting payment terms.

  • How does technology help make sure payments are made on time?

Technology options, like billing software and tools for keeping track of payments, can speed up the payment process and cut down on delays.

  • What are the long-term advantages of promoting early payment?

Creating a habit of on-time payments can boost trust, improve relationships with suppliers, and promote economic growth and security in general.

author avatar
Shraddha Vaviya Content Writer
With several years of experience, I am deeply passionate about writing and enjoy creating content on topics such as GST, tax and various finance-related subjects. My goal is to make complex financial matters understandable for readers by simplifying them.

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