The government will implement a rule in FY25 requiring payments to micro, small and medium enterprises (MSMEs) to be made within 45 days, failing which companies will have to pay tax on the amount due.
Any change to the rule is possible only in the Union Budget in July, two senior finance ministry officials said. The government is not looking at deferring the rule by one year, as sought by traders, they said.
“According to the Finance Act 2023, companies need to make payments to the MSME sector within 45 days, which is slated to come into effect from April 1, 2024, else the companies cannot claim deductions on it,” a senior finance ministry official told Moneycontrol.
The Finance Act, 2023, introduced Section 43B (h) in the Income Tax Act to ensure timely payments are made to MSMEs and to maintain uninterrupted cash flow. If companies fail to make payments within 45 days, the amount will be added to their profit on which tax will have to be paid.
Parliament has already approved the amendment. The new rule implies that an employer, including a company, can claim a deduction for tax, duty, cess, or fee payable to the government only when it is actually paid, regardless of when it is accrued or incurred.
“The provision ensures that businesses fulfil their tax obligations promptly, rather than defer payments indefinitely for tax benefits,” the second finance ministry official told Moneycontrol
Read more at: CNBCTV18
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