The textile sector has expressed concern over the impact of a new clause in the Income Tax Act, 1961, through the Finance Act 2023 on payment for goods provided by Micro and Small Enterprises (MSME). 

In the Finance Act 2023, the Finance Ministry has introduced Section 43B(H), which would ensure payment towards the goods supplied by MSMEs within 45 days. This is as per provisions provided under Section 15 of the MSMED Act, 2006, to ensure prompt payments so that MSMEs will not be affected by delays in any fund flow issues.

Flagging the industry’s concern, the Tamilnadu Spinning Mills Association (TASMA) has written to the Finance and MSME ministries saying the clause has triggered a panic among suppliers and buyers in the textile value chain.  “Even though, the decision to introduce Section 43B(H), to the Income Tax Act 1961, … many buyers, who have been receiving the goods / supplies hitherto with a flexibility of payment period as agreed upon between both the parties, are now hesitant to accept the goods, when the payment terms are limited to 45 days only,” the association said. 

Smooth trade so far

In certain trades in the textile industry, the payment period has been accepted by the supplier as well as the buyer as 90 days and transactions have been going on smoothly without any issue. Suppliers and buyers feel that a period of 90 days will be necessary to get the payment considering the nature of the goods which undergo further value-addition through other processes, TASMA said.

Hence, it has urged the MSME Ministry to amend the clause allowing 90 days for the settlement of payment with micro, small and medium enterprises. “If this cannot be introduced as a General Amendment to the Act, it can be considered restrictively for the textile industry alone suitably, considering the ongoing business practices …,” the association said.