- Finance Act 2023 amended the Income Tax (IT) Act to stipulate that any payments owed to MSMEs, not resolved within 45 days, will not qualify for tax deductions until the payment is made.
- It is applicable to transactions that involve the purchase of goods/ services from enterprises registered under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
- The amendment came into force w.e.f. April 01, 2024.
- Unintended consequences of these amendment
- Large companies canceling orders to registered MSMEs and placing these with unregistered MSMEs.
- Many smaller MEME entities are opting to surrender their registration to survive and retain businesses.
- Reclassifying MSMEs from ‘manufacturing entity’ to ‘trading entity’, etc.
- Other challenges faced by MSMEs in India
- Access to finance: Many MSMEs struggle to access finance due to stringent lending norms, lack of collateral, insufficient credit history, etc.
- Infrastructure bottlenecks: Leads to higher operational costs, production delays, etc.
- Regulatory: Complex and uncertain regulatory frameworks, including taxation, environmental regulations, etc., increase compliance costs.
- Significance of MSMEs: Employment generation (as MSMEs are labor-intensive), contribution to GDP (~30%), rural industrialization, balanced regional development, export promotion, etc.