New Delhi, Apr 20 (KNN) The Federation of All India Vyapar Mandal, a traders' union representing small businesses, has filed a petition with the Supreme Court challenging Section 43B(h) of the Income Tax Act. The traders allege that this new clause violates their fundamental rights.

At the crux of the dispute is the claim that Section 43B(h) unfairly restricts small firms from extending credit periods beyond 45 days to buyers, reported CNBC.

This, the traders argue, creates an arbitrary classification that pushes buyers towards favoring Medium-scale units, violating constitutional guarantees of equality and freedom to conduct business.

"The new clause imposes taxes on the full transaction value instead of just the profit, squeezing working capital for Micro and Small Enterprises (MSEs)," said Jayendra Tanna, National President of the traders' body. 

"It discourages medium enterprises from buying from smaller ones and violates India's WTO commitments," he added.

The traders have challenged the provision under Articles 14 and 19(1)(g) of the Constitution, which guarantee equality before law and freedom to practice any trade respectively. They argue the clause disregards RBI credit norms and applies solely to private companies, infringing on small firms' rights.

Tax experts acknowledge the government's intent to protect Micro, Small and Medium Enterprises (MSMEs) but flag concerns over potential business losses and an uneven playing field. 

"This rule may take away the level playing field from industries whose buyers prefer longer credit periods," said Amit Maheshwari of AKM Global tax firm.

The clause (h) in section 43B of the Income Tax Act stipulates that any overdue payments to MSMEs beyond the specified 45-day limit outlined in section 15 of the MSME Development Act 2006 will only be eligible for deduction upon actual payment. Failure to adhere to the prescribed time limit will result in tax liability for the buyer.

With elections underway, any amendment can come only via the judiciary, as the government cannot alter Finance Act provisions. The Supreme Court's decision will determine whether traders get relief or the government's stance prevails in this brewing conflict over the controversial tax clause.

(KNN Bureau)