Amendments to the Income-Tax Act in the Finance Act, 2023 were implemented to ensure prompt payments to Micro, Small, and Medium Enterprises (MSMEs). However, these amendments led to unintended consequences.
Highlights of the Amendments:
- Implementation Date: Effective from April 1, 2024.
- Payment Mandate: Payments must be made to MSMEs within 45 days as per a written agreement. Without a written agreement, payments must be completed within 15 days.
- Tax Deduction: Entities failing to comply will not qualify for tax deductions until the payment is made.
- Applicability: Applies to transactions involving goods/services purchased from entities registered under the MSMED Act, 2006.
Consequences:
- Cancelled Orders: Large companies have cancelled orders with registered MSMEs and shifted their business to unregistered ones.
- Competition: The provision has sparked competition between registered and unregistered MSMEs, leading some to deregister to avoid losing business opportunities.
- Reclassification: MSMEs are reclassifying themselves from a “manufacturing entity” to a “trading entity” and other forms.
Ref: Source
| UPSC IAS Preparation Resources | |
| Current Affairs Analysis | Topperspedia |
| GS Shots | Simply Explained |
| Daily Flash Cards | Daily Quiz |