SOLUTION FOR MSME- DELAYED PAYMENT
The government has undertaken various initiatives to promote and ensure timely payments to micro and small enterprises (MSEs). In line with these, Budget 2023 seeks to cover payments made to MSEs under Section 43B of the Income Tax Act, 1961 (ITA).
It envisages that any payment towards purchases from MSEs beyond the payment time limit specified in Section 15 of the MSME Act will be allowed as a deduction only on an actual payment basis. Otherwise, the entire amount will be considered as income under ITA.
As per the existing provisions, buyers are required to make payments to MSEs within the maximum period of 45 days. Any delay would entail penal interest. There are a variety of well-intended legal and regulatory provisions, as well as supervisory and institutional infrastructure, to curb the intractable issue of late payments to MSEs.
These include disallowing penal interest paid for delayed payment to MSEs as deductible expenditure, disclosure of overdue payments and interest thereon in audited accounts of companies, furnishing of the half-yearly report by the companies regarding the amount of overdue to MSEs and reasons for the same, Samadhan portal for registering complaints of delayed payments and online Trade Receivables Discounting System [TReDS].
Despite these efforts, payment delays persist on a large scale. In addition, the remedies involve time-consuming administrative hassles and a less effective enforcement mechanism, both of which discourage delayed payment complaint filing.
The proposed provision of 43B(h) appears to be comparable to the present regulation on the non-deductibility of penal interest on late payments as an expenditure. Some leeway for payment delays under Section 43B(h) also arises out of tax declaration being done at the end of a financial year. In order to improve protection against such leeway, manipulations, and non-reporting, it is suggested that the provisions of 43B(h) be linked to the GSTN system.
It enables automatic digital monitoring of late payments in real-time. As the Udyam Registration Portal is integrated with both the Income Tax and GSTN systems, it will simplify record sharing with the income tax site. Further, the Budget proposes GSTN to join the account aggregator network which will help in data sharing.
Many firms are harmed by escalating credit indiscipline, protracted payment delays, fear of opportunistic behavior, reduced trade credit flows, higher follow-up cost, and lower turnover. The proposed remedy can effectively address these issues. This will create a win-win ecosystem for firms of all sizes, banks, government, and overall economic growth. In the fight against late payments, the interconnections between GSTN, IT, and Udyam Registration portals and the proposal for the inclusion of the GSTN system in the account aggregator network could be a game-changer.