Supreme Court Dismisses MSME Plea Against Section 43B(h) of the Income Tax Act: 45-Day Credit Extension Rule.
The Supreme Court recently made a significant decision regarding the credit practices of micro, small, and medium enterprises (MSMEs) in India. The court declined to hear a challenge brought forth by MSMEs against Section 43B(h) of the Income Tax Act, a provision that restricts these enterprises from extending credit to buyers beyond a period of 45 days. This rule is designed to regulate credit activities within the MSME sector and ensure timely payments, addressing the common working capital issues faced by these businesses.
Under this provision, if an MSME registered under the MSMED Act of 2006 provides a credit period exceeding 45 days to a buyer when selling goods or services, it is subject to penalties. Despite petitions from MSME groups arguing that this rule could potentially lead larger buyers to favour unregistered suppliers to avoid the 45-day limit, the Supreme Court opted not to consider the challenge against Section 43B(h), thereby maintaining the tax provision's validity.
The government's intention behind the 45-day credit limit is to bolster the working capital of MSMEs by discouraging delays in payments from buyers. However, some businesses view this regulation as overly restrictive. While it aims to address a pertinent issue faced by MSMEs, critics argue that it may hinder their flexibility in conducting business and could potentially drive away buyers who prefer longer credit terms.
In essence, the Supreme Court's decision to uphold Section 43B(h) underscores the ongoing debate surrounding regulatory measures aimed at balancing the financial stability of MSMEs with the need for business flexibility and growth opportunities.
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