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I.T. Rules amended to enforce prompt payment for supplies taken from small & medium enterprises

India Business

In a recent amendment to Income-Tax Rules, delayed payments to MSEs will incur payment of interest at 18 % per annum compounded annually; in addition it will entail liability to pay income-tax on such interest.

“Delayed payments to MSEs will not only entail payment of interest to the affected MSEs at 18% p.a. compounded monthly (effective rate 19.56%) but will also entail liability to pay income-tax (at as much as 33.99% presently) on such interest, which is inadmissible as expenditure deductible from taxable income,” reads a notification released by the Ministry of Finance, Government of India. 

The decision would assuage millions of small and medium enterprises who have been facing payment default to their services. 

According to Micro, Small and Medium Enterprises Act, 2006, manufacturing enterprises which investment in equipment is up to Rs 10 lakh are Micro, above Rs10 lakh and up to Rs 2 crore are Small; above Rs.2 crore and up to Rs. 5 crore are Medium. 

Manufacturing

  • Micro Enterprises – investment up to Rs. 25 lakh
  • Small Enterprises – investment above Rs.25 lakh & up to Rs. 5 crore
  • Medium Enterprises – investment above Rs. 5 crore & up to Rs.10 crore

Enterprises which are in the services, investment up to Rs. 10 lakh are termed Micro, above Rs.10 lakh & up to Rs. 2 crore – Small, and above Rs.2 crore and up to Rs. 5 crore are Medium. 

Service

  • Micro Enterprises – investment up to Rs.10 lakh
  • Small Enterprises – investment above Rs. 10 lakh & up to Rs. 2 crore
  • Medium Enterprises – investment above Rs.2 crore & up to Rs. 5 crore


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