New Delhi, Feb 19 (KNN) MSME apparel manufacturers anticipate significant losses totalling between Rs 5,000-7,000 crore during the January-March quarter, as reported by the Clothing Manufacturers Association of India (CMAI).

The association attributes this projection to an amendment in the Income Tax Act mandating payments to MSMEs within 45 days, prompting retailers to cancel orders with MSMEs in favour of non-MSME players.

Traditionally, retailers operate on a credit cycle of 90-120 days, occasionally extending to 180 days for payments.

The recent amendment to Section 43B of the Income-tax Act, specifically the addition of Section (h), stipulates that any outstanding payment to an MSME beyond the prescribed time limit incurs deduction eligibility, effective from the assessment year 2024-25.

Failure to meet the 45-day payment deadline results in such payments being counted as income until settled.

“It is common for even well-regarded retailers to follow this timeframe for settling payments. Consequently, the expectation for retailers to amend their business models immediately to accommodate a 45-day payment cycle is highly unrealistic,” the CMAI highlighted in a release.

Additionally, a notable number of retailers are contemplating returning unsold merchandise to manufacturers, relieving themselves of payment obligations, the release added.

Rahul Mehta, Chief Mentor, CMAI, predicts a shift in retailer behaviour towards placing orders with manufacturers outside the MSME category to avoid compliance with the 45-day payment requirement.

The CMAI has advocated its recommendations to Union Finance Minister Nirmala Sitharaman, urging the government to delay the implementation of the amendment and gradually reduce credit days over a three-year period.

(KNN Bureau)