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SC rejects plea by MSMEs against 45-day payment rule

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In Short:

The Supreme Court rejected a plea by small businesses challenging an Income Tax Act rule limiting credit to buyers to 45 days. This rule, Section 43B(h), aims to ensure timely payments and address working capital shortages in the MSME sector. The court allowed the Federation of All India Vyapar Mandal to withdraw the petition and approach the high court for further action.


Supreme Court Upholds Rule Prohibiting MSMEs from Extending Credit Beyond 45 Days

Welcome to the latest news from New Delhi! The Supreme Court made a decision on Monday regarding a plea by micro, small and medium enterprises (MSMEs) challenging a rule under the Income Tax Act. This rule prevents businesses from extending credit to buyers beyond 45 days.


Regulating Credit Extension Practices

Section 43B(h) of the Income Tax Act aims to regulate credit extension practices among MSMEs. The goal is to ensure timely payments and address working capital shortages in the sector. This provision specifically applies when a business purchases goods or avails services from an enterprise registered under the Micro, Small, and Medium Enterprises Development Act, 2006.


Concerns from MSMEs

Some MSMEs have expressed concerns that this provision might lead larger buyers to bypass small and medium suppliers and instead opt to purchase from unregistered enterprises. This led to a plea being filed by the Federation of All India Vyapar Mandal, representing the MSMEs.


Decision and Requests

The apex court allowed the Federation to withdraw the petition and approach the high court. In February, the Confederation of All India Traders (CAIT) met with finance minister Nirmala Sitharaman, requesting a one-year postponement of the clause’s implementation until April 2025.

In a memorandum to the finance ministry, CAIT expressed support for the government’s decision to ensure timely payments to the MSME sector within 45 days. However, they also highlighted a “lack of clarity” regarding the applicability of the law to traders and other related provisions. CAIT urged the government to suspend the implementation of the clause until there is sufficient clarification and nationwide dissemination of information.

Stay tuned for more updates on this important development!

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