Section 43B(h) Sparks Concern Among Exporters, Advocacy for Extension

Indian exporters, represented by 15 export promotion councils, including the Federation of Indian Export Organizations, are pressing for an exemption from a recent regulation requiring payment to micro and small enterprises (MSMEs) within 45 days.

Approximately 150,000 exporters have voiced worries, asserting that this stipulation would severely impact their cash flow, given that export payments typically exhibit an average delay of 120 days.

The regulation, Section 43B(h) of the Income Tax Act, intends to tackle delayed payments to UDYAM-registered micro and small entities. However, exporters are advocating for an extension to 120 days.
They contend that this measure could compromise their international competitiveness, emphasizing the necessity for a level playing field compared to countries offering more lenient credit terms.

Industry representatives underscore challenges such as heightened cash flow constraints amidst geopolitical uncertainties, proposing an exemption for supplies from MSMEs to exporters from this regulation.

What is Section 43B(h)

The new regulation, starting on April 1, 2024, states that companies must pay any pending bills to UDYAM-registered small businesses within 45 days. Failing to do so, companies will have to pay more tax for the years 2023–24. This is because they can only claim deductions for payments they make in that year.

In India, businesses typically recognize expenses as they occur (on an annual basis), regardless of whether payment has been made. However, according to Section 15 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, and the newly introduced Section 43B(h) of the Income-tax Act, it is mandated that businesses must settle payments to MSME Registered Enterprises within 15 days, or extend it up to 45 days if there is a contractual agreement in place.

UDYAM Registrations:

The Indian government has introduced Udyam Registration, an online registration system, aiming to streamline the registration process for MSMEs. This initiative replaces the earlier EM-I/II and Udyog Aadhaar Memorandum (UAM) systems. The key goal of Udyam registration is to offer MSMEs a simplified pathway to access a range of benefits and incentives provided by the government. These advantages encompass easier credit access, subsidies, and exemptions available under various schemes.

Now Section 43B(h) brings a new advantage to MSMEs. The following benefits will be realized by MSME units:

  • Decrease in payment-related disputes.
  • Enhancement of cash flow.
  • Heightened certainty in planning
  • Augmented bargaining power.

While exporters also recognize the significance of prompt payments, they propose a gradual reduction in the timeframe to address concerns from all stakeholders. In essence, exporters are seeking exemptions to facilitate their adaptation to the new regulation and uphold their competitiveness in the global arena.

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