Compliance

Section 43B(h): the 45-day MSME payment rule

Since FY 2023-24, paying a registered micro or small supplier late doesn't just strain the relationship — it can cost you the tax deduction on that expense entirely, for that year.

The rule in one line

Pay a Micro or Small enterprise supplier within the agreed term (max 45 days) or, with no written agreement, within 15 days — or the expense is disallowed under Section 43B(h) until the year you actually pay.

General guidance, not tax advice — confirm treatment for your specific situation with your CA before relying on it for a filing.

What changed

The Finance Act 2023 added clause (h) to Section 43B of the Income Tax Act, effective from Assessment Year 2024-25 (i.e. payments relating to FY 2023-24 onward). Section 43B already worked on a "paid, not just accrued" basis for things like statutory dues and employee contributions — this extended the same logic to payments due to Micro and Small Enterprises under the MSMED Act, 2006.

Who it applies to

Condition	Detail
Supplier must be registered	Under Udyam Registration as Micro or Small (not Medium — Medium enterprises are excluded from this specific clause).
Buyer	Any business, regardless of size, that buys goods or services from a registered Micro/Small supplier.
Payment term with written agreement	Whatever is agreed, capped at 45 days from acceptance of goods/services — even if the agreement says 60 or 90, the tax-deductibility cap is still 45.
No written agreement	15 days from acceptance.

What happens if you miss it

The expense isn't disallowed forever — it's disallowed for that year, and becomes deductible in the year you actually pay, on a cash basis. In practice that means:

Your reported profit for the year goes up by the unpaid amount, and so does your tax.
You get the deduction back later, but you've paid tax early on money you hadn't actually kept — a real cash cost, not just a paperwork inconvenience.
It shows up at audit and return-filing time, often as a surprise, because the trigger is a payment date buried in the purchase ledger, not something anyone flags at the time of booking the expense.

What to actually do about it

Identify which vendors are Udyam-registered Micro/Small. Ask new vendors for their Udyam certificate at onboarding; it isn't visible from a GSTIN alone.
Tag them in your books. In Tally, a simple ledger group or naming convention for MSME-registered suppliers makes them easy to filter come audit time.
Track invoice date + 45 days (or 15, without a written term) per bill, not per vendor — the deadline is invoice-specific.
Review the outstanding payables list monthly, the same way you'd review receivables — anything against a tagged MSME vendor approaching day 40 needs to move before it crosses the line.

This is a payables question, not a receivables one Collection Plan analyses what your customers owe you — it doesn't track what you owe your own suppliers, so it won't flag your 43B(h) exposure directly. This guide exists because the same discipline that gets your customers to pay you on time — knowing exactly what's outstanding and by when — is what keeps you on the right side of this rule with your own vendors. If you're a CA advising clients on both sides of this, see our notes for accountants.

The other side of this rule

If you are a registered Micro or Small enterprise, this cuts in your favour — your larger customers now have a real tax incentive to pay you within 45 days rather than the 90-120 days many SMEs are used to waiting. It's worth mentioning the registration and the rule explicitly in your own payment reminders to slow-paying corporate customers; it changes the conversation from a favour you're asking for to a compliance date they're managing on their own return.

Chasing your own receivables? Start with your ageing report.

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Next: For CAs and accountants · How to reduce DSO · How tax law affects MSME cash flow · MSME Samadhaan