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West Bengal Trade Confederation Calls For Reversal Of MSME Payment Rule

Updated: Apr 18, 2024 02:40:11pm

West Bengal Trade Confederation Calls For Reversal Of MSME Payment Rule

Kolkata, Apr 18 (KNN) The Confederation of West Bengal Trade Associations has issued an urgent call demanding the removal of a newly introduced subsection 43(b) in India's Income Tax Act related to payments made to Micro and Small Enterprises (MSEs).

The contentious provision, which came into force on April 1, 2024, restricts businesses from claiming tax deductions on payments to MSMEs unless made within 15 days of accepting supplies, or 45 days if a longer credit period was mutually agreed upon, reported TT.

However, the confederation argues the new rules run counter to existing business practices where credit cycles routinely exceed 45 days. This has made purchasing from MSMEs while claiming tax deductions an unviable proposition for many traders.

“Several businesses have larger credit periods than 45 days, and this is creating division among those who can and those who cannot give credit of over 45 days,” said Narendra Kapadia, director of the confederation.

Kapadia warned the new tax provision has mounted working capital pressure on traders for the same sales volumes due to the shortened credit timeframes.

In a strongly-worded statement, the confederation said, “The very purpose of section 43B(h), to provide benefit to MSMEs, is defeated when this will make purchase from them unviable for their buyers. The cancellation of orders and also of MSME registration has already begun.”

With the Lok Sabha elections around the corner, the trade body expressed unwillingness to wait any longer, saying, “We find it not possible to wait further in the midst of the ongoing Lok Sabha Election days.”

According to an industry insider, there are fears that if payments to MSMEs are not made within the stipulated timeframe, tax deductions could be disallowed, potentially increasing overall tax liabilities by up to 40 per cent after factoring interest and penalties.

Narayan Jain of the All India Federation of Tax Practitioners stated traders are reluctant to procure from MSMEs due to fears over disallowed deductions for year-end outstanding payments. He advocated reviewing the provision, proposing that payments be allowed until income tax return filing deadlines.

As concerns mount, trade bodies are urging the finance ministry to revisit subsection 43B(h) amid the ongoing general election. They argue the very purpose of aiding MSMEs is being undermined as the new rules make purchasing from them commercially unviable for many buyers.

(KNN Bureau)


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