MSME stands for Micro, Small and Medium Enterprises. It is a term used to classify businesses based on their size and investment. MSMEs play a crucial role in the economy of many countries, including India, by generating employment and contributing to the GDP.
Micro enterprises: Investment in plant and machinery or equipment up to Rs. 25 lakh and turnover up to Rs. 50 lakhs.
Small enterprises: Investment in plant and machinery or equipment up to Rs. 5 crore and turnover up to Rs. 50 crores.
Medium enterprises: Investment in plant and machinery or equipment up to Rs. 10 crore and turnover up to Rs. 250 crores.
MSME 45 Days Payment Rule
In India, the MSME Act has introduced a 45-days payment rule for Micro & Small Enterprises. Section 43B(h) of the Income Tax Act mandates that large companies (defined as those with a turnover exceeding Rs. 500 crore) must clear payments to MSMEs within 45 days of delivery of goods or services. If there’s a written agreement specifying a different payment term, that term applies, as long as it’s not longer than 45 days. In the absence of a written agreement, the payment window shrinks to 15 days.
So, if you are a Micro or Small enterprise, and you have sold goods or provided services to a Buyer, the Buyer must make payments for the goods or services within a maximum period of 45 (Forty-Five) days from the date of the delivery of the goods or services.
This MSME 45 days payment rule aims to improve the cash flow and liquidity of MSMEs, which often face challenges in managing their working capital due to delayed payments from buyers.
Why is it significant?
Delayed payments are a major roadblock for MSMEs, often crippling their cash flow and hindering their growth. This rule aims to ensure timely payments, improving financial stability and boosting the MSME sector.
Current status:
- The rule was notified in November 2023 and came into effect from April 1, 2024.
- While it’s a positive step, some initial confusion and concerns exist regarding its implementation and potential impact on business relationships.
Please visit www.consultvalue.in and call +91 9315975635