A new law that mandates that any payment made to registered micro, small or medium (MSME) enterprises beyond 45 days of receiving goods or services will not be recognised as an expense and added to the profit of the company for taxation purposes has caused a significant discomfort amid the organised apparel retailers, top sources told FE.
“Essentially, the amendment, which was introduced recently to the Finance Act 2023 under Section 43B (h), stipulates that payments to registered MSME suppliers beyond 45 days will be added to the profit of the company instead of being treated as an expense. This will mean that companies will have to pay income tax on MSME payments in the event of non-compliance,” says Rahul Mehta, chief mentor, The Clothing Manufacturers Association of India (CMAI), an apex industry body, is pursuing the matter with the Finance Ministry. The proposed regulations are tighter in the absence of a written agreement, as the stipulated time of payment will be 15 days instead of 45 days.
The body has requested the Finance Ministry to temporarily hold the implementation of the rule for the 2023-24 financial year, suggesting a staggered implementation over three years instead. It has also requested that payments from one MSME to another MSME for goods sourced should be excluded from the rule.
CMAI says that some apparel retailers have already begun cancelling their orders to registered MSMEs as they remain uncertain about meeting the March 31, 2024 deadline of the rule for the ongoing financial year. Cancellations could increase in the coming weeks and the loss as a result of cancellations could touch Rs 5000-7,000 crore depending on the order size.
Read more at: Financial Express
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