Section 43B(h): Pay MSME Suppliers Within 45 Days or Lose the Tax Deduction
Section 43B(h) was inserted by the Finance Act, 2023 and is effective from 1 April 2024 (AY 2024-25 onwards). It links your income tax deduction to timely payment of MSME suppliers.
WHAT DOES SECTION 43B(h) SAY
If you purchase goods or services from a supplier registered as a micro or small enterprise under the MSMED Act, 2006, you must pay them within the time limit specified under Section 15 of the MSMED Act. If you do not, the expense will be disallowed in the year of purchase and allowed only in the year when payment is actually made.
WHO DOES IT APPLY TO
The provision applies only when the supplier is a micro enterprise or small enterprise. It does not apply to medium enterprises.
Micro enterprise: Investment in plant and machinery up to Rs 2.5 crore and turnover up to Rs 10 crore.
Small enterprise: Investment up to Rs 25 crore and turnover up to Rs 100 crore.
(Revised limits effective from 1 April 2025 as notified by the government.)
PAYMENT TIMELINE UNDER MSMED ACT SECTION 15
If there is a written agreement between buyer and supplier, payment must be made as agreed but not exceeding 45 days from the date of acceptance or deemed acceptance of goods or services.
If there is no written agreement, payment must be made within 15 days from the date of acceptance or deemed acceptance.
WHAT HAPPENS IF YOU PAY LATE
The expense is disallowed in the financial year of purchase. It becomes deductible only in the year when payment is actually made. This increases your taxable income for the current year.
Additionally, under Section 16 of the MSMED Act, the buyer is liable to pay compound interest to the supplier at three times the bank rate notified by RBI. This interest is not deductible as a business expense.
HOW TO CHECK IF YOUR SUPPLIER IS AN MSME
Check the Udyam Registration portal at udyamregistration.gov.in. Every registered MSME has a Udyam Registration Number. You can verify your supplier registration status and category there.
WHAT BUSINESSES SHOULD DO
1. Identify which of your suppliers are registered micro or small enterprises
2. Ensure payment is made within 45 days (with agreement) or 15 days (without agreement)
3. If payment is delayed beyond the deadline, the expense must be added back to taxable income while filing ITR
4. Your tax auditor will report unpaid MSME dues in Form 3CD of the Tax Audit Report
WHAT DOES SECTION 43B(h) SAY
If you purchase goods or services from a supplier registered as a micro or small enterprise under the MSMED Act, 2006, you must pay them within the time limit specified under Section 15 of the MSMED Act. If you do not, the expense will be disallowed in the year of purchase and allowed only in the year when payment is actually made.
WHO DOES IT APPLY TO
The provision applies only when the supplier is a micro enterprise or small enterprise. It does not apply to medium enterprises.
Micro enterprise: Investment in plant and machinery up to Rs 2.5 crore and turnover up to Rs 10 crore.
Small enterprise: Investment up to Rs 25 crore and turnover up to Rs 100 crore.
(Revised limits effective from 1 April 2025 as notified by the government.)
PAYMENT TIMELINE UNDER MSMED ACT SECTION 15
If there is a written agreement between buyer and supplier, payment must be made as agreed but not exceeding 45 days from the date of acceptance or deemed acceptance of goods or services.
If there is no written agreement, payment must be made within 15 days from the date of acceptance or deemed acceptance.
WHAT HAPPENS IF YOU PAY LATE
The expense is disallowed in the financial year of purchase. It becomes deductible only in the year when payment is actually made. This increases your taxable income for the current year.
Additionally, under Section 16 of the MSMED Act, the buyer is liable to pay compound interest to the supplier at three times the bank rate notified by RBI. This interest is not deductible as a business expense.
HOW TO CHECK IF YOUR SUPPLIER IS AN MSME
Check the Udyam Registration portal at udyamregistration.gov.in. Every registered MSME has a Udyam Registration Number. You can verify your supplier registration status and category there.
WHAT BUSINESSES SHOULD DO
1. Identify which of your suppliers are registered micro or small enterprises
2. Ensure payment is made within 45 days (with agreement) or 15 days (without agreement)
3. If payment is delayed beyond the deadline, the expense must be added back to taxable income while filing ITR
4. Your tax auditor will report unpaid MSME dues in Form 3CD of the Tax Audit Report
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Disclaimer: This content is the author's personal opinion and analysis. It does not constitute professional tax or legal advice. Consult a qualified professional for specific advice on your situation.
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