Use Zoho to Manage MSME 45-Day Payment Compliance

The MSME 45-day payment rule, introduced under Section 43B(h) of the Finance Act, 2023, came into effect on April 1, 2024. This regulation mandates that companies must pay Micro, Small, and Medium Enterprises (MSMEs) for goods or services within 45 days or as per the contract terms, whichever is earlier. Failure to comply means that the company cannot claim the expense as a tax deduction in the year it occurred, but only when the payment is actually made. This rule aims to improve the cash flow situation of MSMEs by ensuring timely payments from larger businesses.

The payment timeline depends on the agreement between the buyer and MSME seller: if a contract exists, payment must be made within the agreed date or within 45 days of purchase, whichever comes first; if no agreement exists, payment is due within 15 days. Non-compliance attracts compound interest penalties at three times the bank rate, starting from the due date, which cannot be written off as expenses. The rule enhances MSMEs’ financial stability, allowing them to avoid expensive loans, invest in growth, and improve creditworthiness. Large companies also benefit by optimizing tax deductions, strengthening supplier relationships, and reducing supply chain risks. Zoho Books supports compliance by enabling businesses to enter MSME details, track unpaid bills, and manage vendor payments efficiently under this new regulation.

The MSME 45-day payment rule represents a significant step towards supporting small businesses through timely payments and legal protections. It not only helps MSMEs maintain healthier cash flows and sustainable growth but also benefits larger companies through tax compliance and stronger supplier partnerships. Utilizing tools like Zoho Books to manage MSME data and payments can streamline adherence to this rule, reduce penalties, and foster mutually beneficial business relationships. Companies are encouraged to review their payment practices to ensure full compliance and contribute to the growth of the MSME sector.