A new rule mandating a 45-day deadline for payments due to micro, small, and medium enterprises (MSME) took effect on April 1. Traders in Gujarat are moving court blaming the new rule for orders drying up.
The government’s decision to impose a payment deadline for dues owed to small businesses has backfired.
According to a report, more than 40,000 Indian small businesses, including 12,000 in Gujarat, have cancelled their registration and approached the Supreme Court with an appeal to remove the mandated rule to clear payments within 45 days.
Under section 43H (B) of the Income Tax Act 1961, anyone buying goods from any of the 36 million micro, small, and medium enterprises (MSME) in India must pay the money due within 45 days. The unpaid dues are added to the buyer’s profit.
Thousands of small businesses claim that new orders from bigger customers have dried up since the rule took effect on April 1.
The business has started to flow from the registered entities to the unregistered ones because that allows the buyer to avoid the payment deadline, according to Federation of All India Vyapar Mandal President Jayendra Tanna.
The unintended consequence has led to much furore among small businesses. Other traders’ organisations are preparing to move the Court.
“Our small MSMEs have cancelled their registration. If we have to go to the Gujarat High Court in the future, we will go,” Meghraj Dodwani, the head of the Ahmedabad Vyapari Mahasangh, said.