New Delhi, May 8 (KNN) Major traders' associations across India are preparing to move High Courts next week against the recently introduced clause 43B(h) in the Income Tax Act.

The new provision, effective April 1, 2024, disallows tax deductions for buyers on invoices from Micro and Small Enterprises (MSEs) unless payments are made within 45 days of an agreement existing, or 15 days if no agreement is in place.

The Federation of All India Vyapar Mandal (FAIVM), along with associations from Chennai and West Bengal, is likely to petition the Madras, Calcutta, and Gujarat High Courts.

This comes after the Supreme Court rejected their plea last week seeking an interim stay or quashing of the provision, instead directing them to pursue relief through the High Courts.

The traders contend that the amendment breaches constitutional rights under Article 19, which guarantees the freedom to practise any trade or business. They argue that the government cannot dictate payment terms between private parties engaged in a transaction.

"As buyers, we have to pay MSE sellers within 45 days to be eligible for tax deductions. However, there is no mandate for our buyers to pay us within that timeframe, often leading to longer payment cycles and working capital issues," explained Jayendra Tanna, President of FAIVM.

Traders can currently register as MSMEs only to access priority sector lending benefits from banks. The new clause does not apply to outstanding payments owed to them by their buyers.

While the government aims to address delayed payments faced by MSE sellers, traders have sought a mechanism to ensure timely payments across all business segments, including from large enterprises and government bodies.

The Clothing Manufacturers Association of India has also urged for an extension of the payment period before fully implementing the 45-day limit by March 2027.

Amidst the concerns raised, the government is considering potential amendments to the clause to prevent disruptions to the credit cycle of MSEs and provide adequate time for compliance.

(KNN Bureau)