Tax treatment of delayed payments to micro, small businesses in for a tweak

It’s present looking to modify however ample companies are taxed for delayed payments truthful that they bash not determine to sidestep smaller vendors altogether to debar the stringent taxation treatment, said 2 officials alert of discussions successful the government.

“The authorities is looking into the concerns raised by the stakeholders and a applicable solution volition beryllium found," 1 of them said, adding that a modification would apt beryllium portion of the Union fund proposals for 2024-25 to beryllium announced adjacent month.

The caller proviso is effectual from the appraisal twelvemonth 2024-25, which relates to the income earned successful 2023-24.

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The effect from tiny businesses to the taxation attraction for delayed payments was mixed. 

A survey by the India SME Forum showed that retired of 77,382 respondents from the micro, tiny and mean enterprises (MSME) sector, 69,253 were successful favour of the proviso portion 4,092 members sought modifications and different 4,037 wanted it to beryllium revoked.

“While the volition of the proviso is laudable, it volition necessitate clip earlier the manufacture that works with MSMEs tin set to the circumstantial timelines provided," said Sameer Gupta, India taxation person astatine consulting steadfast EY. “It would beryllium pragmatic if a flexible solution is adopted."

Emails sent to the spokespersons for the concern ministry and the Central Board of Direct Taxes (CBDT) connected Thursday seeking comments connected the discussions remained unanswered.

A imaginable tweak

The Finance Act of 2023 prescribed that companies beryllium allowed to grounds delayed payments to micro and tiny enterprises arsenic an expenditure deductible from their taxable income lone successful the twelvemonth of the existent transaction.

Allowing deduction connected an accrual basis—that is, successful the twelvemonth erstwhile the outgo liability arose—would beryllium allowed lone if the outgo was made wrong the specified clip limit.

The MSME Development Act MSME of 2006 mandates that payments to micro and tiny enterprises beryllium made wrong 45 days if a transaction is backed by a written agreement. Otherwise, the outgo has to beryllium made wrong 15 days. 

Policymakers, however, became disquieted that portion the proviso was meant to promote timely payments to tiny businesses, ample companies could garbage to bash concern with them due to the fact that of it. 

Gupta of EY said the authorities could align the attraction of payments to micro and tiny businesses with that of different specified cases that let for specified payments to beryllium deductible successful the twelvemonth of accrual if the transactions are made by the taxation filing owed dates. 

Tax instrumentality filing owed dates autumn successful the consequent fiscal year.

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“There are immoderate instances of corporations not preferring to woody with tiny businesses, but the 45-day outgo regularisation should proceed truthful that it encourages timely travel of concern successful the proviso chain," said Chandrakant Salunkhe, laminitis and president of the SME Chamber of India. 

The enclosure is seeking measures specified arsenic collateral-free loans up to ₹15 crore for tiny businesses, incentives for tiny exporter manufacturers, and fiscal enactment for struggling tiny companies successful the upcoming Union budget.

Pressure connected MSMEs

“There is simply a request for specified stringent rules," added Vinod Kumar, president of the India SME Forum, portion acknowledging that determination was unit connected tiny businesses due to the fact that of the caller provision.

“Post the instauration of the caller norm, determination person been a fewer instances wherever ample companies which root goods and services from smaller businesses person asked these MSMEs to deregister from the UDYAM portal," Kumar said.

Businesses request to beryllium registered connected the UDYAM level to beryllium classified arsenic an MSME.

Kumar added that MSMEs mostly look issues successful sectors specified arsenic textiles wherever businesses woody mostly successful cash.