Apparel MSMEs at risk of huge losses due to new payment norms

Mumbai: Micro, Small and Medium Enterprises (MSME) apparel manufacturers are at risk of losses of Rs 5 to 7 thousand crore in the March quarter of the current year.

The Clothing Manufacturers Association of India, representing India's apparel industry, blamed amendments to the Income Tax Act for the loss. According to the amendment, MSMEs will have to make the payment within 45 days.

This rule has forced retailers to cancel orders placed with MSMEs. In such a situation, apparel MSMEs may face a loss of Rs 5000 to 7000 crore.

Generally, retailers work on terms of three to four months. Sometimes they pay every six months.

Last year, section 43B of the Income Tax Act was amended and clause (h) was added. As per the amendment, any payment not made within 45 days will be treated as income of the taxpayer and will be treated as expenditure only after payment. The new standard has been implemented from the assessment year 2024-25.

A statement issued by the association said that it is extremely difficult for retailers to establish a 45-day payment cycle.

The statement also claimed that many retailers who are unable to make payments within 45 days are returning their purchases.

Rahul Mehta, president of the association, said retailers are considering placing orders to manufacturers who do not fall under the definition of MSME, so that they can be exempted from complying with the 45-day norm.

In this regard, a letter has been written to the Finance Minister requesting him to stop the implementation of the amendment. It has also been requested to reduce the payment period in a phased manner.

One MSME has suggested that other MSMEs should also be kept out of this amendment.