Section 43B(h) — Pay Micro and Small Suppliers within 15/45 Days or Lose the Deduction: Who Is Covered, How Disallowance Works, MSME Form 1 and Samadhaan
Video Explanation & Insights
Section 43B(h): the 45-day payment rule for MSMEs and what happens if you miss it
3 videos on this topic
What the section does
Clause (h) of section 43B, inserted by the Finance Act 2023 and effective from assessment year 2024-25, says that any sum payable to a micro or small enterprise beyond the time limit in section 15 of the MSMED Act 2006 is allowed as a deduction only in the year it is actually paid. The purpose is to end the habit of large and medium buyers sitting on small suppliers' bills. The other clauses of section 43B allow a deduction if payment is made by the due date of filing the return; clause (h) does not — the 15 or 45 days from acceptance of goods or services is the only window.
| Situation | Tax treatment |
|---|---|
| Paid within 15 days (no written agreement) or within the agreed period up to 45 days | Deductible in the year of purchase as usual |
| Paid after the window but within the same financial year | Deductible in that year — the section bites only on amounts outstanding at year-end beyond the window |
| Outstanding at 31 March beyond the window | Disallowed for that year; allowed in the year of actual payment |
| Interest paid to the supplier for the delay under MSMED Act section 16 | Never deductible (section 23 of the MSMED Act) |
The arithmetic matters. A trader with ₹3 crore sales and ₹2.8 crore of purchases and expenses shows ₹20 lakh profit; if ₹20 lakh of those purchases from micro or small suppliers is still unpaid beyond 45 days at year-end, taxable profit becomes ₹40 lakh for that year, with the deduction shifting to the next year when the bill is paid. The accounting method makes no difference.
Which suppliers are covered
- •Only micro and small enterprises registered on the Udyam portal. Medium enterprises are outside the clause.
- •Classification (from 1 April 2025): micro — investment in plant and machinery up to ₹2.5 crore and turnover up to ₹10 crore; small — investment up to ₹25 crore and turnover up to ₹100 crore. Both limits must be met. Until 31 March 2025 the limits were ₹1 crore / ₹5 crore and ₹10 crore / ₹50 crore, as the video explains.
- •Manufacturers and service providers are covered; wholesale and retail traders hold Udyam registration only for priority-sector lending and are not 'suppliers' under the MSMED Act, so payments to traders are outside 43B(h).
- •The supplier must be registered at the time of supply; a supplier without Udyam registration cannot invoke the clause — which is why every micro and small unit should register today and print the Udyam number on its invoices.
- •Buyers under presumptive taxation (sections 44AD / 44ADA) compute deemed income, so in practice there is nothing to disallow; the video flags that the position has been debated.
What buyers and suppliers should do
Section 43B(h): questions we are asked
From assessment year 2024-25 — financial year 2023-24 onwards.
15 days from acceptance where there is no written agreement; the agreed period, capped at 45 days, where there is one.
No. The proviso that allows other 43B payments up to the return date does not apply to clause (h).
No — only micro and small. Traders are also outside, since their Udyam registration is for priority-sector lending only.
The deduction moves to the year of payment. Interest paid to the supplier for the delay is never deductible.
A half-yearly return companies file with the MCA about dues to micro and small suppliers outstanding beyond 45 days.
Through the MSME Samadhaan portal, with statutory interest at three times the bank rate; the buyer's 43B(h) exposure is also a lever.