MSME Timely payment rule to take effect in 2024-2025

( As per Finance Act 2023)

Delayed msme payments put a strain on cash flow for MSMEs. It prevents you from meeting your day-to-day expenses, and settling your payments, and limits your growth too. Due to delayed msme payments, you have to increase your borrowings and take a debt to manage your expenses.

But there has yet to be a rule finalised on msme repayments. Delays in these msme payments are due to unfair bargaining, unorganised payment processes, lack of awareness regarding exercising their right to receive timely payments, and more.

To help MSMEs receive timely payments, the government has decided on a new rule.

The 45-day timely payment support for MSMEs in 2024-2025

The Indian government is taking a step to improve cash flow for Micro, Small and Medium Enterprises (MSMEs). The MSMED Act already mandates payments within 45 days of accepting goods or services, but a new rule in the Finance Act 2023 strengthens this.

As per the Finance Act 2023, companies need to make payments to the MSME sector within 45 days, expected to come into effect from April 1, 2024. And timely payment rule has been implement keeping MSMEs in mind.

And a full-fledged implementation of the same would be finalised after the union budget 2024-2025.
Effective April 1, 2024, if big companies fail to pay MSMEs within 45 days, they'll lose the ability to claim tax deductions on those payments. This incentivizes timely payments and aims to create a more stable financial environment for MSMEs in India.
Companies that fail to pay MSMEs within 45 days will not be able to claim tax deductions on those payments. This encourages timely payments and improves cash flow for MSMEs.

This new rule has a dual effect:

Why Businesses Need to Adapt for MSME Timely payment rule in 2024-2025-

Companies that buy from MSMEs will need to adjust their payment cycles. This might involve:

Streamlining internal approval processes to avoid delays.
Negotiating payment terms with suppliers to ensure they fall within the 45-day window.
Exploring alternative financing options to meet cash flow requirements if necessary.

Boost for MSMEs with MSME timely payment rule :

MSMEs can finally expect faster payments, leading to several benefits:

Improved cash flow: Faster access to funds allows for smoother operations and investment in growth.
Reduced financial stress: Predictable payments eliminate the anxiety of delayed invoices.
Stronger financial stability: Consistent cash flow strengthens the financial health of MSMEs, allowing them to weather economic fluctuations better.

Overall, the timely payment rule aims to create a more balanced and supportive ecosystem for MSMEs in India.

Conclusion:

The Indian government's new rule related to MSME Timely payment rule to take effect in 2024-2025 is a significant step towards a more robust and financially secure future for this vital sector. By enforcing the existing 45-day payment mandate and penalizing late payments through tax implications, this initiative creates a win-win situation.

MSMEs will need to adapt newer timely payment practices, but MSMEs stand to gain a critical boost in cash flow, reduced financial stress, and greater stability. This reform paves the way for a more balanced ecosystem where MSMEs can thrive and contribute more effectively to India's economic growth.

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Frequently Asked Questions-

What is meant by the “appointed day”?

As per section 2(b) of the MSMED Act, "Appointed Day" represents the date when a particular amendment or rule related to payments to MSMEs becomes applicable. Here it refers to expiration date post 15 days of accepting of goods or services by a buyer from a supplier.

What is the time limit for making payments to MSME as mentioned in the MSMED Act?

The time limit for making payments to MSME as per MSMED Act is dependent upon the written agreement between the buyer and the MSME.-
With no written agreement- Buyer has to make payment within 15 days from the date of receiving goods and services.
With written agreement- Buyer has to make payment within 45 days from the date of receiving goods and services.

Is payment made to the traders also fall under Section 43b(h)?

Section 43b(h) of the Income Tax Act specifically applies to payments made to MSMEs. Traders, if they meet the criteria of being a micro, small, or medium enterprise, would fall under this section. However, if a trader doesn't meet the MSME criteria, the section wouldn't apply to payments made to them.

What is the MSME 45 days payment rule in 2024? Is it the new rule for payment within 45 days?

Yes, The MSME 45 days payment rule in 2024 mandates that buyers must make payments to MSMEs within 45 days of receiving goods or services if there's a written agreement between the parties specifying a credit period of more than 15 days.This rule is enforced through Section 43b(h) of the Income Tax Act, which imposes penalties on buyers for delayed payments.

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