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income tax law: Traders hint at slump in bulk purchases from MSME units before April as new IT law stares them in face

Sections of master distributors are said to be carefully weighing on their purchases in view of the new income tax law that requires them to clear pending bills with MSME units within 45 days at the most.

The new provision in the IT law will kick in from the assessment year 2024-25. The default this fiscal year by dealers will invite action later. Rahul Goyal, a manufacturer-cum-trader, in Bengaluru, said many distributors have begun scaling down on their purchases just to be on the right side of the law.

“Up until last year, we would buy in bulk from MSMEs towards the end of the fiscal year to stock up on goods. This time, we cannot afford to do so,” Goyal, a member of the Karnataka Hardware & Allied Merchants; Association, said.

K Bhavadasan, MD of KP Namboodiris, a Thrissur-based ayurvedics firm, said small manufacturing units had this worry as the well-intentioned law could cause other implications.

Merchants are upset that what is sauce for the goose is not the sauce for the sander — their customers have no such deadline for payment.

“If I don’t get the payment within a certain deadline, how can I clear my bills to an MSME within 45 days,” asked Goyal.”How can a distributor honour his payment commitment to a manufacturer if hundreds of small merchants he has supplied products to don’t pay him on time?,” asked a Kerala-based manufacturer, empathising with his distributors.Government bodies should set an example for the rest in making payments, said Bhavadasan. “We have sold products worth Rs 5.5 crore to the Kerala State Civil Supplies Corporation (‘Supplyco’) and the bill is still pending,” he said, adding that he had to downsize his staff to absorb the financial impact.

“If the payment is not made within 45 days, the section 43B (h) would treat the due as part of your business income for the current financial year which would face taxes. Carrying the due forward to next year would make the purchase costlier,” said Arun Upadhyay, a CA in Bengaluru. “We will have to see how things are going to play out in the months to come.”

The Confederation of All India Traders (CAIT) has written to the Centre asking for a grace period of six months to adjust to the new system, general secretary Praveen Khandelwal told ET. “Right now, there is a lot of confusion, not just among traders, but also the CAs as to where exactly we fall.”

“If the material has to come from north India, it takes an extra week to come, and thus a trader loses close to 10 days between the billing date and supply. Up to now, many suppliers would understand this problem and would provide some leniency in the payment cycle, but that’s not possible now,” Goyal said.

The Tamil Nadu Textile Merchants Association wrote to the Finance Minister Nirmala Sitharaman, saying that the amendment “was creating a panic among all traders, manufacturers. ” Enforcing it would lead to restriction in sale of goods as traders would no longer be able to buy in bulk.

The Bangalore Wholesale Cloth Merchants Association has written to the minister as well, asking for an extension of 90 days to be able to comply with the law. Trade activist Sajjanraj Mehta called the amendment yet another example of the government “favouring the MSMEs,” without consulting traders.

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