Guides · MSME
Section 43B(h): the income-tax cost of paying MSMEs late
Section 43B(h) of the Income-Tax Act is what gave the MSME 45-day rule real teeth: from 2023-24, a buyer cannot deduct a purchase from a micro or small supplier until the amount is actually paid, unless it is paid on time.
What does Section 43B(h) do?
Section 43B(h) of the Income-Tax Act stops a buyer from deducting a purchase from a micro or small enterprise until the amount is actually paid — unless it is paid within the time limit set by Section 15 of the MSMED Act.
Pay within 15 or 45 days and the expense is deductible in the year it is booked; pay late and the deduction moves to the year the money actually changes hands.
When did Section 43B(h) take effect?
It applies from the financial year 2023-24 (assessment year 2024-25), which is when late payments to small suppliers first began to carry a direct income-tax cost for buyers.
The MSMED interest provisions have existed since 2006 but were weakly enforced; Section 43B(h) is what gave the 45-day rule real weight.
Does the usual pay-before-return-filing relief apply?
No. The general Section 43B proviso — that an amount is deductible if paid before the income-tax return due date — does not extend to clause (h).
Only actual payment restores the deduction, so a buyer cannot cure a delayed MSME payment simply by clearing it before filing the return.
Which suppliers does Section 43B(h) cover?
It covers dues to micro and small enterprises that manufacture goods or provide services and are registered under the MSMED Act — it does not apply to medium enterprises.
Wholesale and retail traders are outside it, because their Udyam registration is recognised only for priority-sector lending, not for the delayed-payment provisions.
How does a buyer avoid the disallowance?
A buyer avoids it by paying every micro and small supplier within the Section 15 limit — 45 days with a written agreement, 15 days without — and by tracking which bills are close to that line.
A ledger that ages each payable against the 45-day clock makes the exposure visible. Lekha records and tracks; it does not replace your accountant.
Questions
- Does Section 43B(h) apply to purchases from a medium enterprise?
- No. It applies only to micro and small enterprises. Amounts owed to a medium enterprise are outside clause (h), though companies still disclose them through MSME Form 1.
- Does Section 43B(h) apply to a trader supplier?
- No. It covers micro and small manufacturers and service providers; a wholesale or retail trader's Udyam registration is recognised only for priority-sector lending.
- Is the buyer's deduction lost forever if it pays late?
- No — it is deferred. The deduction is allowed in the year the payment is actually made, but the delay increases taxable profit in the year of the delay.
This guide is general information, not legal or tax advice. Confirm the current rules and your own circumstances for any specific case.