Apparel MSMEs risk huge losses from new payments norm

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Mumbai: In the March quarter of the current year, micro, small and medium enterprises (MSME) apparel manufacturers are at risk of losses of Rs 5,000 to 7,000 crore.

The Clothing Manufacturers Association of India, which represents India's apparel industry, attributed the loss to amendments to the Income Tax Act. According to the amendment, MSMEs will have to make payments within 45 days.

This rule has forced retailers to cancel orders given to MSMEs. In such a situation, it may be the turn of apparel MSMEs to suffer a loss of Rs 5000 to Rs 7000 crore.

Retailers generally work on three to four month terms. Sometimes they make payments every six months.

Section 43B of the Income Tax Act was amended and clause (H) was added last year. 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 assessment year 2024-25.

Setting up a 45-day payments cycle is extremely difficult for retailers, said a statement issued by the association.

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

Retailers are considering giving orders to manufacturers who do not fall under the definition of MSMEs to exempt them from complying with the 45-day norm, said Rahul Mehta, president of the association.

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

One MSME has suggested that other MSMEs should also be excluded from this amendment.

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