Supreme Court Declines MSMEs’ Plea Challenging Rule on Credit Extension in Income Tax Act

The Supreme Court’s recent decision to uphold a rule under the Income Tax Act restricting credit extension practices among micro, small, and medium enterprises (MSMEs) has sparked debate and concern within the business community. Section 43B(h) of the Income Tax Act prohibits businesses from extending credit to buyers beyond 45 days, with penalties for non-compliance including compounded interest penalties and loss of tax deductions.

While the provision aims to ensure timely payments and address working capital shortages in the MSME sector, some MSMEs worry that it may prompt larger buyers to bypass them in favor of unregistered enterprises. The Federation of All India Vyapar Mandal, representing the MSMEs, had filed a plea challenging the rule but was directed to approach the high court instead.

In response, the traders’ body Confederation of All India Traders (CAIT) has requested a one-year postponement of the rule’s implementation, citing concerns over its applicability and potential impact on traders. While CAIT supports the goal of ensuring timely payments within 45 days, they stress the need for clarity and dissemination of information before enforcement.

As the debate continues, businesses and stakeholders are closely monitoring developments and awaiting further guidance from the government on the implementation of this rule. Stay tuned for updates on this evolving story.