Tax treatment of delayed payments to micro, small businesses in for a tweak

livemint.com:

NEW DELHI : The government introduced a tax provision last year to prod large corporations into paying their micro and small enterprise vendors in time, only to hear concerns that it could backfire on the intended beneficiaries. It’s now looking to modify how large companies are taxed for delayed payments so that they do not decide to sidestep smaller vendors altogether to avoid the stringent tax treatment, said two officials aware of discussions in the government.

“The government is looking into the concerns raised by the stakeholders and a practical solution will be found," one of them said, adding that a modification would likely be part of the Union budget proposals for 2024-25 to be announced next month. The new provision is effective from the assessment year 2024-25, which relates to the income earned in 2023-24.

Also read | New law on prompt p​ayment for supplies will help MSMEs, but it falls short The response from small businesses to the tax treatment for delayed payments was mixed. A survey by the India SME Forum showed that out of 77,382 respondents from the micro, small and medium enterprises (MSME) sector, 69,253 were in favour of the provision while 4,092 members sought modifications and another 4,037 wanted it to be revoked.

“While the intention of the provision is laudable, it will require time before the industry that works with MSMEs can adjust to the specific timelines provided," said Sameer Gupta, India tax leader at consulting firm EY. “It would be pragmatic if a flexible solution is adopted." Emails sent to the spokespersons for the finance ministry and the Central Board of Direct Taxes (CBDT) on Thursday seeking comments on the discussions remained unanswered.