According to the Clothing Manufacturers Association of India (CMAI), Indian MSME apparel manufacturers are anticipated to face a loss of Rs 5,000-7,000 crore in the January-March quarter.

CMAI cited an amendment to the Income Tax Act that states payments to MSMEs need to be made within 45 days and claimed that this has pushed retailers to cancel orders with MSMEs.

The apparel industry typically follows a credit day cycle of 90-120 days for payments; which in some cases even extends to 180 days.

“It is common for even big 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,” CMAI said in a press release.

“Moreover, a significant number of retailers are contemplating the return of unsold merchandise to the manufacturers, thereby absolving themselves of the obligation to pay for these items,” CMAI added.

“Retailers will look to place orders with manufacturers that don’t fall under the MSME bracket and where they do not have to comply with payments being made within 45 days,” Rahul Mehta, Chief Mentor at CMAI explained.

Last year, Section 43B of the Income-Tax Act was amended and states that any sum payable by the assessee to an MSME beyond the time limit set in Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, is eligible for deduction.

This comes into effect from the assessment year 2024-25. The amendment added that if payments are not done within 45 days, it will be considered as income and will only become an expense once it has been paid.

The CMAI has submitted its recommendations to Union Finance Minister, Nirmala Sitaraman and has requested the government to withhold the implementation of the amendment and introduce a reduction in credit days over a period of three years.

Indian Apparel.