Section 43B(h): Why does delayed payment to an MSME matter?
Late payments to micro and small enterprises can push your tax deduction into a later year — even though the expense is genuine.
- Published
- Reading time
- 4 min
- Level
- Foundation
01 The question
Your company books an expense for a micro supplier in March but pays in May. Can you still deduct it in the year you booked it?
02 Short answer
If you owe money to a micro or small enterprise registered under the MSMED Act and do not pay within the time allowed by Section 15 of that Act, the deduction is allowed only in the year you actually pay — not the year you incurred the expense.
03 The rule
Section 43B(h) of the Income-tax Act, 1961 was introduced by the Finance Act, 2023. It covers sums payable to micro and small enterprises beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006.
Under Section 15 of the MSMED Act, payment is due within the agreed date — which cannot exceed 45 days from acceptance of the goods or services — or within 15 days where there is no written agreement.
04 Simple example
Scenario
Indus Retail receives packaging from a registered micro enterprise on 10 March under a written 45-day credit agreement. Indus pays on 15 May.
Payment was due by around 24 April, so Indus paid late. The expense cannot be deducted in the year ending 31 March; it shifts to the following year, when payment was actually made.
Had Indus paid by 24 April, it could have claimed the deduction in the year the expense was incurred.
05 Why it matters
Year-end payables to MSME vendors can increase taxable income for that year if they are not cleared within the statutory window.
It requires finance teams to know which vendors are micro or small enterprises — information that is often missing from vendor master data.
06 Practical takeaway
- 01Capture MSME (Udyam) registration status and classification for every vendor.
- 02Align contractual credit periods with the 45-day ceiling.
- 03Run an ageing review of MSME payables before each year-end close.
07 Source / reference
- Income-tax Act, 1961 — Section 43B(h)
- MSMED Act, 2006 — Sections 15 and 16
- Finance Act, 2023
References are to the provisions as generally understood at the time of writing. Provisions may since have been amended, renumbered (including under the Income-tax Act, 2025) or interpreted differently.
8. Educational disclaimer
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