Starting from April 1, 2024, significant changes will come into effect regarding payment rules for Micro, Small, and Medium Enterprises (MSMEs) in India. These changes aim to ensure timely payments to MSMEs and improve financial liquidity for small businesses .
Key Changes in MSME Payment Rules
Mandatory Payment Within 45 Days: Businesses dealing with MSMEs must clear payments within 45 days from the date of acceptance of goods or services.
Compound Interest on Delayed Payments: If payments exceed 45 days, the buyer will be liable to pay compound interest at three times the bank rate specified by the Reserve Bank of India (RBI).
Tax Deductibility Restrictions: Payments delayed beyond the stipulated period may not be eligible for tax deductions under the Income Tax Act.
Increased Compliance Requirements: Companies must disclose outstanding MSME payments in their financial statements, ensuring greater transparency.
Enhanced Legal Protection: MSMEs can seek legal recourse through the MSME Samadhaan portal for non-payment issues.
Impact on Businesses
For MSMEs: Improved cash flow and reduced instances of delayed payments.
For Large Businesses: Higher compliance and stricter financial discipline required to avoid penalties.
For the Economy: Strengthening of the MSME sector, leading to increased economic stability and growth.
Steps to Ensure Compliance
Review Supplier Agreements: Ensure payment terms align with the new rules.
Automate Payment Systems: Implement automated reminders and processing to avoid late payments.
Maintain Transparent Records: Keep detailed records of invoices and payment timelines.
Conclusion
The revised MSME payment rules effective from April 1, 2024, will enhance financial discipline and support small businesses by ensuring timely payments. Both MSMEs and large enterprises must adapt to these changes to stay compliant and foster a healthier business ecosystem.
