45-day SME payment rule aims to ease working capital issues, faces hiccups

For SMEs, which play a significant role in job creation and exports, this is a welcome move. However, the going has not been smooth

It has been three months since the 45-day payment rule for micro and small enterprises (SMEs) was implemented. Introduced last year through the Finance Act of 2023, the rule, which came into effect on April 1, aims to address the working capital shortages that SMEs face by ensuring they get paid within a stipulated timeframe. 

This amendment to the Income Tax Act, brought about through Section 43B(h), mandates companies to settle payments to SMEs within 45 days. Failure to do so results in a denial of tax deduction on the overdue amount until the payment is made.