IT Act change yet to aid MSMEs
Section 43 b (h) of the IT Act allows payments due to MSMEs to be deducted if they were made within a stipulated time; experts note that while this will benefit MSMEs in the long-run, some buyers may choose to source from other suppliers
An intervention introduced in the Union Budget last year to ensure timely payments to micro- and small-scale manufacturing and service units is yet to help them and even hurting some.
Section 43 b (h) of the Income Tax Act says payments due to UDYAN-registered micro- and smallscale industries would be allowed as deduction only if the actual payment was made within the time stipulated in the MSME Act.
Otherwise, the payment would be taxed as income.
If a micro or small-scale unit had a written agreement with a medium- or large-scale industry for supply of components, spares, or any other product or service, the payment should be made by the buyer within 45 days. If there was no agreement, the payment should be made within 15 days.
However, the risk for micro units was that the buyers would prefer to source from suppliers who were not UDYAN-registered, said B. Kandavel, organising secretary of the Federation of Tamil Nadu Powerlooms Associations. For instance, weavers in Tamil Nadu supplying textile products to large buyers got paid once in three months or so. Buyers are now either reducing payment as the credit period has dropped or are preferring unregistered suppliers, he said.
Still, MSMEs would benefit in the long run as they would get payments on time, asserted Anil Bhardwaj, secretary general of the Federation of Indian Micro, and Small & Medium Enterprises.
The intervention will aid MSMEs though it will take time for the system to settle down and may also temporarily affect the working capital of buyers, said V. Thirugnanam, president, Coimbatore District Small Industries Association.