Last reviewed: 8 July 2026. Section 43B(h) changed the game for anyone buying from micro and small suppliers: pay them late, and you lose the tax deduction for that expense until you actually pay. This guide explains the 15/45-day rule, which suppliers it covers, the interest exposure under the MSMED Act, and how buyers should manage payment cycles to avoid a year-end tax shock.
At a glance
How the rule works
If you do not pay a registered micro or small supplier within the agreed period (capped at 45 days), or within 15 days where there is no written agreement, the expense cannot be deducted in that year - it is added back to your taxable income and allowed only in the year you actually pay. This is a buyer-side tax risk, not a supplier problem.
Who is covered
Only micro and small enterprises registered on Udyam are covered - medium enterprises and unregistered suppliers are not. So the first step is to identify which of your vendors are micro or small, usually by collecting their Udyam registration during onboarding.
Interest and year-end impact
Separately from the income-tax disallowance, the MSMED Act provides for a high rate of interest on delayed payments to MSMEs. At year-end, any overdue payable to a micro or small supplier is disallowed and increases taxable income until settled - so it pays to clear these before 31 March.
What buyers should do
- Tag micro and small suppliers in your vendor master with their Udyam status.
- Track invoice due dates against the 15/45-day limits.
- Prioritise MSME payments, especially near year-end, and provision correctly.
Frequently asked questions
What is Section 43B(h)?
It is an income-tax rule that allows a buyer to deduct payments to micro and small enterprise suppliers only in the year the payment is actually made, if it is not paid within the time limit under the MSMED Act - so delayed MSME payments lose their tax deduction until settled.
What is the payment time limit?
Payment must be made within the period agreed in writing, capped at 45 days, or within 15 days where there is no written agreement. Beyond that, the deduction is deferred to the year of actual payment.
Which suppliers does it cover?
Only micro and small enterprises that are registered on the Udyam portal. Medium enterprises and unregistered suppliers are outside 43B(h).
How do I know if my supplier is micro or small?
Ask suppliers for their Udyam registration and status. Many buyers now collect Udyam details and the enterprise category as part of vendor onboarding.
Does interest apply on late payment?
Yes. The MSMED Act provides for interest at a high rate on delayed payments to MSMEs, separate from the income-tax disallowance under 43B(h).
From when does 43B(h) apply?
It applies from the financial year 2023-24 onwards, so buyers must factor it into their payment cycles and year-end provisioning.
How does it affect year-end accounts?
At year-end, any outstanding payable to a micro or small supplier that is beyond the time limit is disallowed and added back to taxable income until paid, which can increase the tax outgo.
How should buyers manage this?
Identify MSME suppliers, track invoice due dates against the 15/45-day limits, prioritise their payments before year-end, and keep Udyam records to support the treatment.
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