New norm on MSME payments takes off

New Delhi: The Income-Tax (I-T) rule disallowing businesses from claiming tax deductions for payments beyond 45 days to MSMEs for supply of goods and services will come into effect on Monday. According to Section 43B(h) of the Income Tax Act, introduced through Finance Act 2023, if a larger company does not pay an MSME on time - within 45 days in case of written agreements - it can’t deduct that expense from its taxable income, leading to potentially higher taxes. Some industry bodies have urged the government to postpone implementation of the new payment rules, the FISME is of the opinion that the new rule has the potential to be a game-changer for MSMEs.