SMEs (Small and Medium Enterprises) have a significant role to play in Indian economic eco-system. They role encompasses in employment generation, wealth creation, democratization of economy, greater participation of woman and youth, niche cultural awareness and in many more ways. However, till recently, there were no effective means to faster recovery of dues of SMEs. In this article, we are going to explore the mechanism and legal avenues to recover dues of SMEs through MSME Samadhan Portal and recent changes made in Section 43B(h) of Income Tax Law and associated matters.
A) MSME Samadhaan Portal: There are specific time lines to make payments to SMEs. Under Section 15 of MSMED Act, payments must be made to micro and small enterprises within 45 days as per the agreement if any or within 15 days of date of acceptance of goods/services of SMEs.
The question is how to harness benefits of this provision?
1. The facility of faster recovery is available only to micro and small enterprises.
Micro enterprise is one which fulfils the composite criteria of investment in plant and machinery up to Rs. 1 crore and Turnover not exceeding Rs. 5 crores
Small enterprises need to fulfil the composite criteria of investment in plant and machinery up to Rs. 10 crores and Turnover Limit not exceeding Rs. 50 crores.
2. SME needs to be registered with Udyam Aadhar. This registration will entitle the entity to get the help of timelines linked non-payment to be sorted out through MSME Samadhan portal
3. SMEs must mention/get printed Udyam Aadhar registration number on their letterheads, supply order sheets, invoices, bills and other relevant documents
4. After submission MSME Samadhaan portal (samadhaan.msme.gov.in) the application is automatically forwarded online to the concerned MSEFC (Micro and Small Enterprise Facilitation Council)
5. Please upload the work order or affidavit of oral purchase order. In case of multiple invoices, combine them into single PDF and then upload.
6. The MSEFC awards the payment through mutual consent and no appeal in court can be made against it.
7. The claim can be filed against principal as well as interest together or separately.
8. Every reference to MSEFC shall be decided within a period of 90 days from the date of making reference.
9.The award of MSEFC is considered as secured credit and the award must be communicated to the IPR/RP/NCLT, in case of CIRP of the buyer.
10.In case of default, the buyer is liable to pay compound interest with the monthly rests to SME supplier on the amount at the three times the bank rate notified by RBI.
11.The big advantages of filing claim through MSME Samadhaan portal are time saving, cost free and it has deterrent effect on the buyers from MSME.
B) Changes in Income Tax: In the budget of FY 2023, Section 43B (h) has been added. It will have huge impact on payment of SME dues.
1. The deduction will now be allowed only on payment basis in the year in which payment is actually made.
2. This change is in contrast to the earlier provision of deduction of the year end outstanding on accrual basis if the payment is made on or before the due date of filing of the Income Tax Return. However, accrual concept is still valid if payment is made withing time mandated under Section 15 of MSMED Act.
3. In case, SME dues are not cleared within 45 days in case of agreement or within 15 days of appointed day, as required by Section 15 MSME Act, the buyer will not get any tax deduction for those business expenses in its income tax return
4. The advance payment made to SMEs shall be allowed as deduction in the year of payment itself even if it does not fall due for payment.
5. The non-obstante clause at the beginning of Section 43B of Income Tax Act does not override the provisions of MSMED Act.
6. Section 43B applies to deduction regarding business income. It does not apply to payments which are capitalized and are not charged to P & L Account.
7. Sum already paid during the year but beyond the limitation of Section 15 shall be allowed on payment basis in the year in which it is paid.
8. Corporate buyers including foreign company doing business in India shall file half yearly returns as per MSME Form I by 31st October for April to September and by 30th April for the period October to March, stating the payment due and reasons for delay. In case of default, the fine of Rs. 20,000/- first time and Rs.1,000/- per day for each day, subject to maximum Rs. 3 lakhs will be payable
9. There are responsibilities of auditors and corporates to make appropriate disclosures in tax audit and other reports
In view of changes in law and facility of MSME Samadhaan, it is imperative that SMEs must take advantage of the opportunities for faster recovery and the corporate buyers must ensure the fast payments to avoid the legal consequences as well as the foregoing of the expenses in case delay in payment.
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In case you have any concern and queries or need any support in MSME Udyam registration/ Samadhaan portal/recovery/compliance/income tax for SMEs, you may like to contact us.
Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, ca.abhimishra@gmail.com
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