MSME Payment Amendment to the Income Tax under Section 43(b)(h) was introduced by the Government of India with the good intentions of addressing the issues of non-payment & delayed payments that the MSME sector faces.
Although the government’s goals are praiseworthy, the amendment has had serious negative effects because of the unique dynamics of the textile industry, especially the domestic garment industry.
Speaking on the repercussions, Mr. Rajesh Masand, President of CMAI, stated: “It is commendable that the government has taken steps to tackle this systemic challenge. The protracted issue of delayed payments within the MSME sector has long hindered its growth.”
CMAI has submitted a report to Smt. Nirmala Sitharaman, the Hon’ble Minister of Finance & Corporate Affairs, Government of India, outlining the problems and potential remedies. In addition to outlining the particulars of the industry, the submission offers suggestions for safeguarding MSMEs’ interests.
Some of the inherent characteristics of the Garment Industry highlighted in the submission are:
• Due to its extreme fragmentation and informal nature, the garment industry relies heavily on intra-sector credit support from its participants and is not eligible for loan facilities offered by traditional banks.
•The normal credit period in the industry ranges from 90 – 120 days, often extending to 180 days.
•The informal sector, which makes up the majority of the industry, has been somewhat reduced since the introduction of the GST, but it is still a powerful force to be reckoned with and a fierce rival to the smaller firms in the formal sector.
Recommendations made by CMAI to further amend the Section are as follows:
1. Withhold the immediate implementation of the Amendment
2. Introduce the mandatory reduction in credit period over 3 years:
3. Exempt payments from one MSME Member to another MSME Member from the ambit of this amendment.
