NEW DELHI: Exporters have asked for exemption from the new 45-day payment rule for micro, small and medium enterprises (MSMEs) that was brought in through amendments in the Income Tax Act, saying that time taken for overseas shipments and payment realisation would make it difficult to adhere to it.
In a letter to the Prime Minister Narenda Modi, Federation of Indian Export Organisations (FIEO) and 15 sector-specific export promotion councils said that as they receive payments for their sales after a time lag of 120 days, it will be difficult for them to meet the 45-day deadline for their MSME suppliers.
The new rule will take effect on Monday.
The letter said that average lead time for export consignment is 90 days compared to 14 days for domestic consignments. Buyers generally pay after receiving the goods which with an additional 30 days makes it 120 days for exports. Exporters also have to maintain larger inventories and this has increased further due to geopolitical uncertainties.
If the complete exemption is not possible then exporters have asked for extension of time period for payment to MSME suppliers to 120 days from 45 days and keeping supplies to MSME exporters out of the scope of the provision.
The exporters have sought this exemption for a few years to enable them to adjust to new provisions.
Last year’s Finance Bill had amended the Section 43B of the IT Act by inserting a new clause H. Section 43B provides a list of expenses allowed as deduction under the head ‘income from business and profession’ only on the year of actual payment instead of when it is incurred as expense (bill is raised).
The clause (h), which will come into effect on April 1, 2024 with 2024-25 as the assessment year – that is financial year 2023-24. It aims to disallow expenses to buyers on invoices from MSMEs unless paid within 45 days, where agreement exists, and within 15 days if there is no agreement.
“The new rule has impacted the liquidity of exporters who source from MSMEs. The additional liquidity that they have to raise comes at a cost and blunts their competitiveness,” the letter by FIEO said.
The Reserve Bank of India allows nine months to bring in proceeds from export sales. The letter explained that Indian exporters have to give liberal credit terms to buyers to compete with countries that offer more generous terms of payment with longer tenure and also have the advantage of lower interest rates.
Apart from FIEO, the apex body of exporters, other signatory to the letter include export promotion councils for engineering, apparel, leather, gems and jewellery, chemicals and oilseeds.
Source: The Financial Express